Petroleum Geo-Services Announces Second Quarter 2000 Results

Financial Highlights
- Second quarter revenue increases by 19% over the prior year quarter and 11% over the 2000 first quarter due to improved revenue across both business segments
- Second quarter diluted earnings per share are $0.14, exceeding the $0.11 per share earned in the second quarter of 1999 (before unusual items) by 27%
- Production services revenue totals $113 million, 48% of total revenue, for the second quarter
- Second quarter multi-client sales were $61 million, a 9% increase over the first quarter of 2000
- Multi-client cash investments were reduced to $62 million, a reduction of 14% and 23%, respectively, as compared to the 2000 first quarter and the 1999 second quarter, reflecting a significant decrease in capacity allocated to that market segment

Operating Highlights
- PGS reorganizes the Production Services group, creating a sharper focused, streamlined business unit
- PGS enters into a letter of intent for a long term contract to produce Statoil’s Glitne field in the Norwegian sector of the North Sea with the Petrojarl 1 beginning in mid 2001
- PGS’s Petrojarl 1 FPSO is successfully demobilized from Talisman’s Blenheim/Bladon field and redeployed to Ranger’s Kyle field within a record twenty day period, achieving first oil on May 24, 2000
- PGS is awarded a contract to deploy its PetroTrac™ suite of advanced geophysical technologies to improve production through reservoir characterization on the Zakum field in Abu Dhabi, United Arab Emirates, one of the world’s largest offshore oilfields
- PGS executes a major multi-client 3D survey agreement in deepwater mid-Norway that will deploy the largest streamer spread ever used in the marine seismic industry
- PGS executes exclusive agreements with Russia and Brazil to develop and implement data banks utilizing its proprietary PetroBank™ data management platform

Houston, Texas; Oslo, Norway; July 26, 2000: — Petroleum Geo-Services ASA (NYSE: PGO; OSE: PGS) reported 2000 second quarter earnings of $14.3 million, reflecting higher revenue from production services and improved contract seismic pricing. Revenue from the Petrojarl Varg, acquired in July 1999, and higher revenue from the operations of the Petrojarl Foinaven and the Petrojarl 1, currently employed under an early production contract at the Kyle field, positively impacted results for the second quarter as compared to the same period of 1999. Additionally, increasing demand for seismic services, coupled with industry wide capacity reductions during 1999, have improved seismic revenue relative to the same period of 1999.

The Company's 2000 second quarter revenue of $236.4 million represents a 19% increase over the same period of the previous year. Second quarter operating profit was $42.1 million, representing a 18% operating profit margin.

The Company’s net income for the second quarter of 2000 was $14.3 million, an increase of $4.6 million over net income (before unusual items) for the 1999 second quarter. Diluted earnings per share were $0.14 compared to diluted earnings per share (before unusual items) of $0.11 for the same period of 1999; an increase of 27%. Excluding the effect of goodwill amortization, diluted earnings per share for the 2000 second quarter would have been $0.16.

Reidar Michaelsen, Chairman of the Board and Chief Executive Officer, stated, “Our second quarter results reflect the growing demand for oilfield services as oil and gas companies increase exploration and development spending in response to relatively high oil and gas prices and the industry’s need to increase production in order to meet growing demand. Growing geophysical services revenue reflects the strengthening market for seismic data and related services necessary to optimize production from existing reservoirs and to locate and develop new reserves. Our production services segment continues to provide excellent cash flow with strong growth prospects in light of recently announced increases in exploration and development spending and continued outsourcing on the part of oil and gas companies.”


Michaelsen went on to say, “With respect to the multi-client data library, we were effectively cash neutral during the second quarter, after taking account of our multi-client sales revenue and our cash investment of approximately $62 million. We remain on target to generate positive cash flow from the library for 2000. Based upon customer inquiries and recent licensing rounds, we expect multi-client sales to continue to increase throughout 2000 given our extensive portfolio of high quality data in the most prospective regions around the world.”


Review of Geophysical Services Operations

For the quarter ended June 30, 2000, the Company achieved total geophysical services revenue of $123.3 million, of which $61.2 million represented multi-client sales, yielding an operating profit of $14.7 million. The average amortization rate applied to multi-client sales during the second quarter was 57%.

The increase in geophysical services revenue reflects the continued improvement in demand for oilfield services. Strong worldwide demand for oil and gas, relatively low levels of inventory in the United States and uncertainty regarding the amount of excess production capacity in the oil producing nations have combined to keep oil and gas prices at relatively high levels. As a result, many oil and gas companies are experiencing record earnings and have recently announced plans to increase future exploration and production spending; some by as much as 15% to 20%. The majority of the spending increase is expected to be focused on enhancing production from existing reservoirs through reservoir-focused technologies such as those offered by PGS’ PetroTrac™ suite of advanced seismic tools, and on exploration and development in the highly prospective regions of Brazil, mid-Norway, deepwater Gulf of Mexico and West Africa; areas where PGS maintains a sizeable multi-client database.

During the second quarter, we continued to acquire data under our Brazilian multi-client programs and have achieved excellent interest in this data. Offshore Brazil remains one of the most active exploration plays in the world. Additionally, the Norwegian 16th licensing round, completed during the second quarter, included a substantial number of blocks covered by the Company’s multi-client data library, with a corresponding increase in multi-client sales from this portion of the data library. The recent licensing round in Nigeria should result in continued interest in our multi-client data in that region.

Review of Production Services Operations

For the quarter ended June 30, 2000, the Company achieved production services revenue of $113.1 million, a 39% increase as compared to the same period of the prior year, yielding an operating profit of $27.4 million. The majority of this increase can be attributed to the Petrojarl Varg, acquired in July 1999, as well as higher revenue from the Petrojarl Foinaven due to higher production volumes during the period, and the Petrojarl 1 due to the start up of production under the Kyle early production contract.

During the second quarter, the Petrojarl I successfully demobilized from Talisman’s Blenheim/Bladon field and redeployed to Ranger Oil’s Kyle field and achieved first oil within a record twenty days. The Petrojarl 1 is expected to remain in production on the Kyle field at least to October 2000. Additionally, the utility of the Petrojarl 1 was again demonstrated with the execution of a letter of intent, subject to final documentation and certain regulatory approvals, to produce Statoil’s Glitne field in the Norwegian sector of the North Sea. Production under the Glitne contract is expected to start in mid-2001 for a duration of between twenty-six and thirty months, with the first eighteen months non-cancelable. The Glitne contract will require an upgrade of the process capability of the Petrojarl 1 and a significant portion of the upgrade cost is expected to be recouped via the contract. The timing of the upgrade will depend upon the duration of the Kyle early production contract and other potential work. With respect to the Ramform Banff, operational performance continues to improve after the planned shutdown in May to replace the damaged turbine blades and perform other remedial work, and we continue to discuss other opportunities in the vicinity with the respective field operators regarding additional production that may be tied back to the vessel.

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Petroleum Geo-Services’ second quarter earnings conference call is scheduled for July 26, 2000 at 9:30 a.m. EST. Interested parties may listen to the call via Petroleum Geo-Services’ web site at www.pgs.com. PGS suggests that you connect with the site at least fifteen minutes prior to the call to ensure adequate time for any software download that may be needed to hear the call. There will be a digital replay of the conference call beginning at 11:00 a.m. EST on the day of the call through Wednesday, August 2, 2000 at 800-568-6364 or +(1) 402-998-0115 for international callers, passcode PGS.
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Petroleum Geo-Services is a technologically-focused oilfield service company principally involved in two businesses: geophysical seismic services and production services. PGS acquires, processes, manages and markets 3D, time-lapse and multi-component seismic data and provides associated data management solutions. This data is used by oil and gas companies in the exploration for new reserves, the development of existing reservoirs, and the management of producing oil and gas fields. PGS’ PetroTracTM suite of advanced geophysical technologies allows oil and gas companies to better characterize and monitor their reservoirs in order to enhance production and ultimate recovery of hydrocarbons. In its production services business, PGS owns four floating production, storage and offloading systems and operates numerous offshore production facilities for oil and gas companies. FPSOs permit oil and gas companies to produce from offshore fields more cost effectively. PGS operates on a worldwide basis with headquarters in Oslo, Norway and Houston, Texas.
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The information included herein contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These statements are based on certain assumptions and analyses made by the Company in light of its experience and its perception of historical and future trends, on general economic and business conditions and on numerous other factors, including expected future developments, many of which are beyond the control of the Company. Such forward-looking statements are also subject to certain risks and uncertainties as disclosed by the Company in its filings with the Securities and Exchange Commission. As a result of these factors, the Company’s actual results may differ materially from those indicated in, or implied by, such forward-looking statements.

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