PGS Announces Unaudited, Preliminary Results Under Norwegian GAAP for 4th Quarter and Full Year 2003

Generally the results for 2003 showed improvement over 2002 in terms of revenues, adjusted EBITDA, as defined, and cash flow post investment, as defined. However, the operating profit and net loss shown below reflects significant impairment charges in both 2003 and 2002, and in Q4 2003.

 

Highlights for 2003 are as follows:

Full year 2003 cash flow post investment, as defined, increased to $327.2 million from $209.3 million in 2002 reflecting improved adjusted EBITDA, as defined, and significantly reduced cash investment in multi-client library.

For Q4 2003, cash flow post investment, as defined, decreased to $63.7 million from $85.4 million in Q4 2002, due to reduced cash flow from Marine Geophysical partly offset by improved cash flow from Onshore and Pertra.

Fourth quarter Marine Geophysical cash flow was negatively affected by lower than anticipated late sales in Brazil and vessels steaming as well as yard stays, partly offset by continued good contract market performance.

Q4 2003 cash flows for Onshore were improved due to improved project management while Pertra cash flows improved due to increased production  and higher oil price   

 

Summarized unaudited, preliminary results under Norwegian GAAP for the fourth quarter and full-year 2003 are set forth below.  This information (including 2002 financial information audited under Norwegian GAAP) is subject to adjustment, and any such adjustment could be material.  Accordingly, this information should be read in conjunction with, and is subject to the significant qualifications discussed below.

 

 

 

 

(In millions of dollars)	Q4 2003 Unaudited	Q4 2002 Unaudited	Full-year 2003 Unaudited	Full-year 2002 Audited
Revenues	260.5	261.7	1,111.5	992.3
Operating profit (loss)	(498.5)	6.1	(629.6)	(718.8)
Net income (loss)	(522.4)	(120.7)	(814.1)	(1,245.7)
Adjusted EBITDA, as defined (A)	99.4	127.1	477.7	460.5
CAPEX (B)	(24.6)	(7.2)	(57.4)	(60.8)
Cash investments in multi-client (C)	(11.0)	(34.5)	(93.0)	(190.4)
Cash flow post investment A+B+C)	63.7	85.4	327.2	209.3

 

 

 

* Q4 revenues of $260.5 million, comparable with Q4 2002

* Full year adjusted EBITDA, as defined, of $477.7 million up $17.2 million from 2002. Q4 adjusted EBITDA, as defined, of $99.4 million, down 22% from Q4 2002

* Full-year 2003 cash flow post investment, as defined, of $327.2 million, up $117.9 million from 2002. Q4 cash flow post investment, as defined, of  $63.7 million, down $21.7 million from Q4 2002.

* Impairment charges totaling $496.6 million recognized in Q4, in line with "fresh start" reporting under U.S. GAAP as the Company emerged from Chapter 11 proceedings and as announced by the Company on January 23, 2004

* Completed financial restructuring and consummated Chapter 11 proceedings November 5, 2003. Interest bearing debt reduced by $1,283 million

* Arranged $110 million working capital facility in March 2004

* Distributed 1st installment of excess cash of $19.0 million in December 2003

* Changes implemented in accounting policies to increase transparency of financial reporting reduces comparability between periods

 

 

 

* Lower cash flow in Marine Geophysical was caused by reduced multi-client late sales, caused by a delay in the announcement of the Brazil 6th licensing round terms, and significant vessel steaming to start new surveys

* Onshore showed significant improvement due to improved project management

* Production had stable performance on all fields after resolution of Petrojarl Foinaven compressor problem late October 2003

* Pertra performing above expectations due to continuing high production volumes and favorable oil prices.  Q4 reported adjusted EBITDA, as defined, positively impacted by $13.5 million downward revision of abandonment obligation

* Pertra enhanced oil recovery drilling program confirmed substantial reserve additions for the field, which could result in a significant prolongation for the Petrojarl Varg FPSO contract

* The production contract for Ramform Banff was significantly amended and improved (subject to approval by Banff and Kyle licenses)

* Cost cutting program is on track with substantial cost reductions in Marine Geophysical

 

 

The Company, which emerged from Chapter 11 bankruptcy proceedings in early November 2003, is continuing its efforts to have an audit of the Company's 2002 financial statements and a re-audit of the Company's 2001 financial statements completed under U.S. GAAP. The Company is also continuing its efforts to prepare audited financial statements for 2003 under both Norwegian GAAP and U.S. GAAP and to address material weaknesses in the Company's system of internal controls over financial reporting that were disclosed in November 2003. At this time, these material weaknesses have not been eliminated. The Company does not expect to release any U.S. GAAP figures related to periods prior to November 2003 until these audits and re-audit are completed. The Company has established an objective of completing such work in time to permit filing the Company's Annual Report on Form 20-F by June 30, 2004. However, there can be no assurance as to whether or when these audits and re-audit can be completed.

 

In addition, as previously disclosed, if and when completed, the audits and re-audit could result in restatements of the Company's previously filed U.S. GAAP audited financial statements and restatements or other adjustments to its 2002 and 2003 U.S. GAAP unaudited interim financial statements. Those restatements and adjustments could be material, although they are expected to be of a non-cash nature. Furthermore, although the audits and re-audit are being conducted under U.S. GAAP, there can be no assurance that the findings from these audits and re-audit will not have an impact on Norwegian GAAP 2002 and 2003 historical financial statements.

 

Also, as earlier disclosed, until the audits and re-audit of financial statements under U.S. GAAP are completed, the Company will be unable to file with the Securities and Exchange Commission an Annual Report on Form 20-F that contains audited financial statements for three full fiscal years.  For so long as this condition exists, the Company will be precluded from, among other things, listing its American Depositary Shares ("ADSs") on a U.S. national securities exchange or on the NASDAQ Stock Market.  A delay in listing of the Company's ADSs in the U.S. may have a negative impact on their liquidity.

 

Further, certain of the Company's loan and lease agreements and senior note indenture contain requirements to provide audited U.S. GAAP financial statements by June 30 of each year.  Such requirements were waived for financial statements due June 30, 2003.  If the audits and re-audit are not completed by June 30, 2004, the Company intends to seek waivers of such reporting requirements.  However, there can be no assurance that such waivers will be obtained.  Classification of debt in the accompanying unaudited, preliminary consolidated balance sheet has been made assuming that either the audited U.S. GAAP financial statements will be timely completed and delivered or that the necessary waivers will be obtained.

Petroleum Geo-Services ASA  (1)  (2)
Preliminary Consolidated Statements of Operations
			Quarter ended				Twelve months ended
			December 31,				December 31,
			2003		2002		2003		2002
(In thousands of dollars)			Unaudited		Unaudited		Unaudited		Audited
Revenue			$260 536		$261 728		$1 111 548		$992 336
Cost of sales			143 348		122 021		577 130		473 877
Research and technology costs			823		717		2 482		2 766
Selling, general and administrative costs			17 004		11 855		54 246		55 235
Operating expenses before depreciation, amortization and unusual items			161 175		134 593		633 858		531 878
Depreciation and amortization			82 311		112 249		313 481		356 427
Impairment of long-term assets			496 639		-		716 783		807 416
Unusual items, net			18 939		8 797		76 977		15 434
Operating profit (loss)			(498 528)		6 089		(629 551)		(718 819)
Financial expense, net			(19 833)		(41 550)		(110 266)		(147 301)
Other gain (loss), net			(9 834)		(279)		(31 955)		37 721
Income (loss) before income taxes			(528 195)		(35 740)		(771 772)		(828 399)
Provision (benefit) for income taxes			(6 198)		7 232		35 968		201 944
Discontinued operations/operations held for sale, net of tax			(434)		(77 731)		(6 315)		(215 349)
Net income (loss)			$(522 431)		$(120 703)		$(814 055)		$ (1245 692)
			Quarter ended				Twelve months ended
			December 31,				December 31,
			2003		2002		2003		2002
(In thousands of dollars)			Unaudited		Unaudited		Unaudited		Audted
Adjusted EBITDA, as defined  (3) (A)			$99 361		$127 135		$477 690		$460 458
Cash investments in multi-client library (B)			(11 003)		(34 491)		(93 044)		(190 436)
Capital expenditures (C)			(24 640)		(7 207)		(57 397)		(60 759)
Cashflow post investment (A+B+C)			$63 718		$85 437		$327 249		$209 263

 

(1) Certain reclassifications have been made to prior period amounts to conform to the current presentation.

 

 

(3) Adjusted EBITDA, as defined, is defined as net income (loss) before financial items, taxes, depreciation and amortization, unusual items, impairment of long-term assets and discountinued operations. See enclosed Support Tables for a more detailed discussion of and reconciliation of adjusted EBITDA, as defined. Adjusted EBITDA, as defined, may not be comparable to other similary titled mesures from other companies. We have included adjusted EBITDA, as defined, as a supplemental disclosure because mangement believes that it provides useful information regarding PGS's ability to service debt and to fund capital expenditures and provides investors a helpful measure for comparing our operating performance with that of other companies.

 

 

            During 2003, senior management of the Company revised the manner in which it controls its various businesses. Prior to 2003, the Company was managed as two business segments, Geophysical and Production. Due to the increased size and importance of certain businesses within these segments, the Company now manages its business in four segments as follows:

 

* Marine Geophysical, consisting of streamer acquisition, seafloor seismic, marine multi-client library and data processing

* Onshore, consisting of all seismic operations on land and in very shallow water, including onshore multi-client library

* Production, which owns and operates four harsh environment FPSOs in the North Sea

* Pertra, a small oil and gas company owning 70% of and being operator for Production License 038 on the Norwegian Continental Shelf

 

Revenues increased to $1,111.5 million in 2003 from $992.3 million in 2002, an increase of 12%.  The revenue increase for the year is due to increased revenues in Marine Geophysical, Onshore and Pertra, partially offset by decreased revenues in Production. Adjusted EBITDA, as defined, for 2003 was $477.7 million compared to $460.5 million in 2002. Pertra adjusted EBITDA, as defined, increased by $54.9 million and Onshore adjusted EBITDA, as defined, increased by $22.8 million, while adjusted EBITDA, as defined, for Production and Marine Geophysical declined by $38.2 million and $23.2 million, respectively. 

 

Revenues in Q4 2003 were $260.5 million, which were approximately the same as Q4 2002 revenues ($261.7 million).  Adjusted EBITDA, as defined, for Q4 2003 was $99.4 million compared to $127.1 million in Q4 2002, a reduction of 22%. This decrease mainly relates to Marine Geophysical where adjusted EBITDA, as defined, decreased by $51.4 million in Q4 2003 from the comparable quarter last year.  This reduction relates mainly to reduced late sales from the multi-client library and reduced vessel utilization due to increased steaming and yard stay. Compared to Q4 2002, Onshore adjusted EBITDA, as defined, increased by $8.9 million and Pertra adjusted EBITDA, as defined, increased by $13.7 million.

 

Marine Geophysical.  Total revenues decreased $18.4 million, or 12%, from $152.9 million in Q4 2002 to $134.4 million in Q4 2003. Contract revenues increased by $4.7 million (7%) to $70.4 million in Q4 2003, while multi-client late sales declined by $16.0 million (26%) to $45.8 million, and multi-client pre-funding decreased by $9.3 million (53%) to $8.1. Investment in multi-client data was reduced in the period whereas the percentage of multi-client pre-funding on new multi-client investments was 112% in Q4 2003 compared to 58% in Q4 2002. A higher portion of vessel capacity was absorbed in steaming and yard-stay in Q4 2003 compared to Q4 2002, mainly due to increased vessel repairs after high utilization through Q2 and Q3 and significant vessel movements to start surveys in new regions.

 

Adjusted EBITDA, as defined, was $37.1 million for Q4 2003 compared to $88.5 million for Q4 2002, a decrease of 58%. This reduction relates to reduced late sales from the multi-client library, reduced capitalization of cost to multi-client library, and reduced vessel utilization due to increased steaming and yard stay compared to Q4 2002. In addition, effective January 1, 2003 the Company, as described further below, changed its policies for accounting for steaming and yard stay, and cost capitalization to multi-client library. No restatement has been made to the 2002 reported amounts in accordance with Norwegian GAAP. Under the new policies, expenses relating to steaming and yard stay are expensed as incurred and are not deferred or included in cost of multi-client library. The effect on adjusted EBITDA, as defined, for Q4 2002, if the new policy had been applied, is estimated to be a reduction of adjusted EBITDA, as defined, of approximately $13 - 15 million.

 

Cash investment in the multi-client library totaled $7.2 million in Q4 2003 compared to $29.8 million in Q4 2002, a decrease of $22.6 million or 76%.

 

Onshore.  Total revenues increased $6.7 million, or 26%, from $25.8 million in Q4 2002 to $32.5 million in Q4 2003.  Contract revenues increased by $5.1 million (23%) to $27.5 million in Q4 2003, and multi-client sales (including pre-funding) increased by $1.6 million (49%) to $4.8 million.  Adjusted EBITDA, as defined, was $16.5 million for Q4 2003 compared to $7.6 million for Q4 2002, an increase of 117%. The improvement relates mainly to improved management of projects.

 

Production.  Total revenues were $72.5 million in Q4 2003, including inter-segment revenue from Pertra, relatively unchanged from $72.1 million in Q4 2002. Adjusted EBITDA, as defined, for Q4 2003 was $31.8 million compared to $31.9 million in Q4 2002. Two high-pressure gas compressors on Petrojarl Foinaven were down from end June until end October 2003 due to vibration and damage to couplings and bearings. Revenues on Petrojarl Foinaven declined by $5.9 million in Q4 2003 compared to Q4 2002 due to the above factor and generally lower production from the reservoir.

 

Ramform Banff continued to produce at low production levels in Q4 2003. In December 2003, the contract with CNR, operator of Banff and Kyle fields in the UK sector of the North Sea, was amended. Under the amended agreement, Ramform Banff will continue to produce the Banff field until the end of the life of the field. The new contract contains a minimum day rate provision of $125,000 per day and is subject to approval from the Banff and Kyle partners.

 

Pertra.  Revenues increased by $9.9 million, or 60%, from $16.4 million in Q4 2002 to $26.2 million in Q4 2003 due to both higher oil prices and increased production levels. Average oil production increased by 11% to 12,905 barrels per day in Q4 2003 compared to 11,610 barrels per day in Q4 2002. Adjusted EBITDA, as defined, for Q4 2003 was $17.8 million compared to $4.1 million in Q4 2002. The main reason for the increase in adjusted EBITDA, as defined, was a reduction in the accrued abandonment liability of $13.5 million as required under Norwegian GAAP, partially offset by expenditures for seismic data and geophysical services that are charged to expense. Such expenditures amounted to $6.7 million in Q4 2003. The Company changed from full cost accounting to successful efforts accounting effective January 1, 2003. Prior to 2003, expenditures for seismic data and geophysical services would have been capitalized. 

 

The Company, as license operator, started drilling two new wells in November 2003. In late December the first well was successfully completed, while the second well, a production well, was completed in March 2004. The results from these wells confirmed Petra's modified reservoir model.  As a consequence the Company, as license operator, has exercised an option for drilling two additional production wells. Total recoverable reserves from the Varg field are now estimated to be 70 million barrels of oil, out of which approximately 40 million barrels was produced by December 31, 2003, and production is estimated to continue through 2006.

 

 

Impairment of long-term assets amounted to $496.6 million in Q4 2003 and $716.8 million for the full year 2003. Unusual items totaled $18.9 million in Q4 2003 and $77.0 million for the full year 2003.

 

As described elsewhere in this press release, the Company estimated the fair value of its assets and liabilities in relation to the adoption of "fresh start" reporting under U.S. GAAP.  For Norwegian GAAP purposes, impairment charges have been recorded for fixed assets that had carrying values in excess of the estimated fair value.

 

In Q4 2003, PGS recognized impairment charges totaling $496.6 million to write down assets to their estimated fair values.  These charges include a write down of the multi-client seismic library of $148.7 million and a write down of FPSOs of $350.7 million. Previously, under Norwegian GAAP, seismic acquisition vessels and equipment were written down by $136.3 million in Q1 2003 and $2.3 million in Q3 2003 based on fair value estimates, with an adjustment in Q4 2003 reflecting the correct fair value as of yearend 2003. For more detail see the attached Support Tables.

 

In Q4 2003, the Company recognized $10.5 million as debt restructuring and refinancing expenses. For the year 2003, the Company recognized a total of $42.6 million of such expenses.

 

As previously disclosed in the Q1 2003 earnings release, PGS announced a plan for a personnel reduction of approximately 250 employees. Onshore personnel are excluded for the purpose of measuring this reduction due to the variability of personnel level in this business segment.  As of December 31, 2003, PGS personnel had been reduced by 277 employees, or 13%. In Q4 2003, $8.4 million of cost was recognized in relation to personnel reductions, while $20.2 million was recorded for the year 2003, which also included severance payments to certain former employees.

 

PGS has previously disclosed tax claim involving PGS employees employed by PGS Marine Service (Isle of Man) Ltd. In 2003, prior to Q4, $14.2 million had been charged to expense, relating to this claim. The amount was paid as an on account payment in Q4 2003. There are still some uncertainties as to the size of the total claim.

 

 

 Financial expense (net) for Q4 2003 was $19.8 million compared to $41.6 million for Q4 2002. The Company had approximately $1,195 million in interest bearing debt as of December 31, 2003. This debt, with the exception of approximately $191.6 million, which was interest bearing throughout the restructuring, commenced accruing interest on November 5, 2003 when the Company emerged from Chapter 11. Capitalized interest on multi-client surveys in progress was $0.5 million in Q4 2003 compared to $0.7 million in Q4 2002. This is a result of lower investments in multi-client library.

 

 

Other gain (loss), net, includes foreign exchange gain (loss), bank charges and various financial charges. In Q4 2003 PGS recognized foreign exchange loss, net, of $3.4 million compared to a net loss of $3.3 million in Q4 2002. Other financial charges totaled $6.4 million in Q4 2003 compared to $3.6 million in Q4 2002. Included in Q4 2003 charges are accruals for certain additional rental payments under UK leases amounting to $1.8 million (equivalent to GBP 1.1 million). There were no such accruals recorded in Q4 2002.

 

 

By end of Q3 2003 a decision had been made to sell the software subsidiary PGS Tigress (UK) Ltd.  Accordingly revenues and costs, net of tax, relating to this business are classified as operations held for sale. Prior period financial information has been reclassified accordingly.

 

 

Income tax benefit was $(6.2) million for Q4 2003 compared to a provision of $7.2 million in Q4 2002. The tax benefit in the period is mainly related to the deferred tax effect of the asset impairments recorded in Q4 2003.

 

The Norwegian Central Tax Office (CTO) has not yet finalized the tax assessment of PGS Shipping AS and PGS Shipping (IOM) Ltd (CFC) for 2002, when the companies withdrew from the Norwegian tonnage tax regime. The pending issue is related to fair value of the vessels owned by these companies (10 seismic vessels and the FPSOs Petrojarl Varg and Ramform Banff). The Company based such exit on third party valuations, while the CTO has raised the issue whether the Company's book values at December 31, 2001, would be more appropriate as a basis for computing the tax effects of the exit. Any increase of exit values will result in an increase of taxable exit gain and a corresponding increase in basis for future tax depreciation. The Company estimates that if the CTO position is upheld, taxes payable for 2002, without considering mitigating actions, could increase by up to $24 million. The Company believes that its valuation basis for exit has been prepared using acceptable principles and will contest any adjustment to increase taxes payable. No accrual has been made for any taxes that might be payable as a consequence of any potential adjustment.   

 

 

The effect of the net reduction of debt as a result of the financial restructuring of the Company, which is described in more detail below, has been recorded directly to shareholders' equity.  Net effect to equity was $1,283 million in debt reduction, $11.5 million in reduced accrued interest offset by $40.6 million relating to the cash distributed to prior bank and bond creditors of the Company.

 

            As described in "Basis of Unaudited, Preliminary Financial Statements" below, the Company adopted certain new accounting policies effective January 1, 2003. The cumulative effect of these accounting changes as of January 1, 2003, have been charged directly to shareholders' equity covering $26.0 million net of tax for deferred steaming, mobilization and yard stays and $0.7 million net of tax relating to adopting the successful effort method of accounting for Pertra.

 

            The Company has identified certain costs, which historically had not been appropriately accrued for relating to seismic vessel costs, vessel crew rotation costs and vacation costs in certain regions. The effect of these accruals has been recorded to shareholders' equity as a one time charge as of January 1, 2002.

 

            See attached Support Tables for the full details of these Shareholders' Equity restatements.  

 

 

Capital investments totaled $35.6 million in Q4 2003 compared to $41.7 million in Q4 2002.  The main items included in capital investment for Q4 2003 are as follows:

 

* Investments in multi-client library (Marine Geophysical, Onshore and Reservoir Consultants) were $11.0 million in Q4 2003 compared to $34.5 million in Q4 2002, a decrease of 68%

* Capital expenditures in the Marine Geophysical business were $7.3 million in Q4 2003 compared to $3.0 million in Q4 2002, an increase of 143%

* Capital expenditures for Pertra AS, relating to the Varg field in the North Sea, were $11.0 million in Q4 2003 compared to $5.2 million in Q4 2002, an increase of 109%

* Capital expenditures for the FPSO business were $1.7 million for Q4 2003 compared to a credit of $1.1 million in Q4 2002.

* See Support Tables for further details.

 

 

Petroleum Geo-Services ASA  (1)  (2)
Preliminary Consolidated Balance Sheets
					December 31,		December 31,
					2003		2002
(In thousands of dollars)					Unaudited		Audited
Assets
Cash and cash equivalents					$  146 506		$  112 604
Accounts receivable, net					168 187		220 085
Other current assets					64 678		74 066
Assets held for sale					-		68 768
	Total current assets				379 371		475 523
Multi-client library, net					388 813		660 383
Property and equipment, net					1 087 365		1 689 684
Oil and gas assets					21 182		17 324
Other long-term assets, net					34 595		119 916
Total assets					$          1 911 326		$         2 962 830
Liabilities and Shareholders' Equity
Short-term debt and current portion of long-term debt and capital lease obligations					$34 487		$959 550
Debt and other liabilities held for sale					-		21 523
Accounts payable and accrued expenses					202 639		259 512
Income taxes payable					26 902		19 034
Total current liabilities					264 028		1 259 619
Long-term debt and capital lease obligations					1 160 240		1 386 400
Other long-term liabilities					104 624		55 305
Deferred income taxes					9 370		97 307
Total liabilities					1 538 262		2 798 631
Minority interest					111		-
Commitments and contingencies:
Guaranteed preferred beneficial interest in PGS junior
subordinated debt securities					-		142 322
Mandatorily redeemable cumulative preferred stock related to multi-client securitization					-		63 954
Shareholders' equity:					-
Common stock, par value NOK 30; issued & outstanding
20,000,000 shares at December 31, 2003					85 714		71 807
Additional paid-in capital					1 024 629		-
Other equity					(737 390)		(113 884)
Total shareholders' equity					372 953		(42 077)
Total liabilities and shareholders' equity					$1 911 326		$2 962 830

 

 

 

The Company entered into certain lease structures from 1996 to 1998 relating to Ramforms Challenger, Valiant, Viking, Victory and Vanguard; Petrojarl Foinaven; and production equipment of the Ramform Banff.  The Company paid funds to large international banks (the "Payment Banks"), and in exchange, the Payment Banks assumed liability for making rental payments required under the leases (the "Defeased Rental Payments") and the lessors legally released the Company as obligor of such rental payments.  Accordingly, the Company has not recorded any capital lease obligations or related defeasance funds on its consolidated balance sheets with respect to these leases.  This treatment will be re-examined as part of the U.S. GAAP 2002 and 2003 audits and 2001 re-audit.  Any change under U.S. GAAP may also change the Norwegian GAAP presentation.

 

The Defeased Rental Payments are based on assumed Sterling LIBOR rates of between 8% and 9% (the "Assumed Interest Rates").  If actual interest rates are greater than the Assumed Interest Rates, the Company receives rental rebates.  Conversely, if actual interest rates are less than the Assumed Interest Rates, the Company is required to pay rentals in excess of the Defeased Rental Payments (the "Additional Required Rental Payments"). Currently, interest rates are below the Assumed Interest Rates, and based on forward market rates for Sterling LIBOR, as of December 31, 2003 the net present value of Additional Required Rental Payments aggregated GBP 28.5 million, using an 8% discount rate, of which GBP 1.1 million was accrued at December 31, 2003. The Additional Required Rental Payments are reflected in other financial income (loss) as they are incurred and paid.

 

 

On July 29, 2003, PGS voluntarily filed a petition for protection under Chapter 11 of the United States Bankruptcy Code in the U.S. Bankruptcy Court for the Southern District of New York (the "Court"). The filing was done to implement a comprehensive financial restructuring.

 

This filing was done with the agreement of a majority in face amount of both the Company's banks and bondholders and a group of its largest shareholders whereby they agreed to support the Company's Plan of Reorganization (as amended and/or modified, the "Plan") in the Chapter 11 proceeding.

 

This filing only involved the parent company (PGS ASA) and did not involve the Company's operating subsidiaries, which continued full operations, leaving customers, lessors, vendors, employees and subsidiary creditors unaffected.

 

The Company emerged from Chapter 11 on November 5, 2003, just 100 days after filing.

 

 

PGS' $2,140 million senior unsecured creditors, comprising $680 million of bank debt and $1,460 million of bond debt (the "Affected Creditors"), were entitled to select between two recovery packages.  Approximately $2,133 million elected or were deemed to have elected Package B and $7 million elected Package A.  The result was as follows:

 

 

Package A consisted of a $5 million 8-year unsecured senior term loan facility, with outstanding borrowings bearing interest at LIBOR + 1.15%, with 3.68% annual repayment of principal in semi-annual installments followed by a final repayment of $2 million at maturity.

 

 

Package B consisted of:

 

* $746 million of 7-year 10% senior unsecured notes ("Senior A Notes").

* $250 million of 3-year 8% senior unsecured notes ("Senior B Notes").

* 91% of PGS ordinary shares as constituted immediately post-restructuring after giving shares (5%) to the holders of Trust Preferred securities pre-restructuring  and to the then current shareholders (4%), reduced to 61% after the then current shareholders acquired 30% of the total post-restructuring shares for $85 million.

* $85 million of proceeds from the then current existing shareholders' acquisition of 30% of PGS' post-restructuring shares.

 

In addition, Affected Creditors will receive a pro rata share of the cash of the PGS Group in excess of $50 million as of October 31, 2003.  Approximately $19 million of excess cash was distributed in December 2003 and an additional $22.7 million is expected to be distributed in April 2004 and is recorded in accrued expenses at December 31, 2003. 

 

The face value of interest bearing debt is approximately $1,194 million as of December 31, 2003.

 

 

PGS intends to continue the listing of its ordinary shares on the Oslo Stock Exchange and for its American Depository Shares ("ADSs") to continue trading on the U.S. over-the-counter ("OTC") market.  While the Company intends to list its ADSs on a U.S. national securities exchange or on the NASDAQ Stock Market, it is precluded from such a listing until the 2002 and 2003 audits and 2001 re-audit of the Company's financial statements under U.S. GAAP are completed. It is intended that PGS' new Senior A and Senior B Notes will be rated by the major credit rating agencies.  Efforts to obtain credit ratings are ongoing.

 

 

PGS retained $50 million of cash post-restructuring.  Additionally, on March 4, 2004, PGS entered into a $110 million two-year secured working capital facility, $70 million of which can be used for general corporate purposes.  The remaining $40 million will be available for issuance of letters of credit to support bid and performance bonds associated with PGS' day-to-day operations.  The working capital facility will bear interest at the London Interbank Offering Rate (LIBOR), plus 2%.

 

Cash remaining post-restructuring of $50 million plus cash generated from operations supplemented, if required, by borrowings under the new working capital facility, are expected to provide adequate liquidity to meet the Company's ongoing capital and debt service requirements.

 

 

The unaudited, preliminary consolidated financial statements for the fourth quarter and full-year 2003 are prepared in accordance with generally accepted accounting principles in Norway ("Norwegian GAAP"). Information presented on a Norwegian GAAP basis is not necessarily consistent with or comparable to financial statements previously issued by the Company on a U.S. GAAP basis.

 

As noted below, for U.S. GAAP purposes the Company has adopted "fresh start" reporting effective November 1, 2003 and has adopted certain new accounting principles that management believes are less complex, more transparent and better reflect current operations than prior accounting policies.  The accompanying unaudited, preliminary consolidated financial statements for the fourth quarter and full year 2003 have been prepared using the same Norwegian GAAP accounting principles as were used for the 2002 Norwegian GAAP financial statements, except for changes to conform the Norwegian GAAP to the new "fresh start" reporting principles, where appropriate.  The most significant changes resulting from the adoption of the new accounting principles are as follows:

 

* Effective January 1, 2003, expenses incurred in connection with yard stay, steaming and mobilization are expensed as incurred. Such expenses were previously deferred and recognized as part of costs of contracts or multi-client projects as appropriate.  The cumulative effect of these changes in accounting policies as of January 1, 2003, totaling $26.0 million, net of tax, was charged directly to shareholders' equity. Financial statements for 2002 have not been restated.

* Effective January 1, 2003, the successful efforts method of accounting for oil and gas assets was adopted. This change in accounting principle had a $0.7 million, net of tax, cumulative effect as of January 1, 2003, which was charged to directly shareholders' equity. Financial statements for 2002 have not been restated.

* Effective November 1, 2003, the Company has prospectively changed its policy for amortization of its multi-client library. Amortization will continue to be recorded based on the sales forecast method.  Under this method, amortization of a survey's cost is based on the ratio between cost of a survey and total forecasted sales for such survey.  In applying this method the Company will categorize its surveys into three amortization categories with amortization rates of 90%, 75% or 60% of sales amounts. Each category includes surveys where remaining unamortized cost as a percentage of remaining forecasted sales is less than or equal to the amortization rate applicable to each category. Further, the minimum amortization has been increased by reducing the maximum amortization period from 8 to 5 years from completion of a survey. 

* Effective November 1, 2003, depreciable lives of Ramform seismic acquisition vessels and FPSOs have been reduced from 30 to 25 years, except for Petrojarl 1, which will be depreciated over 30 years due to a substantial refurbishment completed in 2001.

 

 

            As noted earlier, the Company is continuing its efforts to have an audit of the Company's 2002 financial statements and a re-audit of the Company's 2001 financial statements completed under U.S. GAAP.

 

            In connection with the re-audit for 2001, the Company is facing particular difficulties in establishing certain beginning (January 1, 2001) balance sheet amounts.  The most complex area is the build up of the cost basis for its multi-client library, which requires the Company to document and ensure consistency of cost elements capitalized for years going back to 1995. 

 

            The Company has engaged substantial external consulting resources to complete the U.S. GAAP audits and re-audit described above and has established an objective of completing such work in time to permit filing the Company's Annual Report on Form 20-F by June 30, 2004. However, as described above, there can be no assurance as to whether or when these audits and re-audit can be completed.

 

As noted above, the Company consummated its Chapter 11 proceeding on November 5, 2003.  As separately reported today, as a result of the Chapter 11 reorganization, the Company is required to adopt "fresh start" reporting under AICPA Statement of Position No. 90 - 7.  Such reporting requires the Company to allocate its reorganization value to its assets in conformity with the procedures specified in FASB Statement No. 141, Business Combinations.  Furthermore, the Company is required to state all of its liabilities, except for deferred tax liabilities, at fair market value.  Additionally, the Company is allowed to change its accounting principles under "fresh start" reporting.  For more details regarding the Company's adoption of "fresh start" reporting, see the Company's news release dated today entitled "PGS Updates Status Regarding Implementation of Fresh Start Reporting Under U.S. GAAP."

 

 

In connection with the audit and re-audit of the 2002 and 2001 U.S. GAAP financial statements, the Company's independent auditor, Ernst & Young, has identified the following material weaknesses: (1) insufficient documentation of or adherence to policies and procedures; (2) inadequate U.S. GAAP expertise in the Company; (3) insufficient support for accounting books and records; and (4) insufficient supervision and review control activities.  These material weaknesses may also contribute to a delay in and make more difficult the completion of the audits and re-audit discussed above.

 

In response to the material weaknesses, PGS has developed and is actively implementing a plan and timetable to address the matters identified by Ernst & Young, including hiring new personnel with expertise in U.S. GAAP and U.S. regulations, improving overall GAAP expertise throughout the accounting organization and upgrading the corporate business controller function within PGS.  The Company has put priority on improving documentation and reporting procedures and has established new and more precise accounting policies.  Further, the Company has established and outsourced an Internal Audit function in cooperation with the accounting firm Deloitte & Touche.   However, these material weaknesses have not been eliminated at this time. 

 

 

Effective November 5, 2003, the new Board of Directors of the Company consists of the following members: Chairman, Mr. Jens Ulltveit-Moe, ordinary board members, Rolf Erik Rolfsen, Harald Norvik, Keith Henry, Francis Gugen, Clare Spottiswoode and Anthony Tripodo. 

 

Sverre Skogen was appointed President of PGS Production and Senior Vice President Petroleum Geo-Services ASA, effective January 12, 2004.  Mr. Skogen has 16 years of managerial experience in business and project management, and most recently held the position of President and CEO of Kværner Oil & Gas Division.

 

For additional support to our unaudited, preliminary fourth quarter and full-year 2003 results under Norwegian GAAP and related news release and presentation, please visit our web site www.pgs.com.

 

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