- Annual revenue increases 15% over prior year; fourth quarter revenue decreases 5%
- Year-to-date operating profit margin (before unusual items) remains consistent with the comparable 1999 margin at 16%; fourth quarter operating profit margin (before unusual items) declines to 11% in 2000 from 13% in 1999
- Year-to-date and fourth quarter diluted earnings per share (before unusual items) are $0.38 and $0.01, respectively
- PGS records pre-tax charges totaling $365.8 million related to asset impairments, including the data library, and accrued loss contracts
- PGS sells its Spinnaker Exploration Company shares—in accordance with its previously announced divestiture plan—recognizing net proceeds of $150.5 million and a pre-tax gain of $54.7 million
- PGS recognizes a UK lease gain of $26 million related to the Foinaven FPSO
- PGS enters into a definitive agreement with Halliburton to sell its global Petrobank data management business and related software for $179.0 million in cash. This transaction, which is expected to close before the end of February, will result in a gain of approximately $145 million, subject to any working capital adjustments
Operating Highlights
- Brunei multi-client survey is considered successful in light of strong prefunding levels
- Nigerian licensing round is announced with good coverage by our multi-client surveys—a portion of the expected uplifts has been recorded in 2000
- PGS secures a dominant high-technology data library in the Campos and Santos basins in Brazil
- Petrojarl I completes an early well test contract on Ranger’s Kyle field and is awarded a multi-year contract in the Norwegian sector of the North Sea; expected to commence production in July 2001
- Corrective alterations undertaken on the Ramform Banff—returned to the Banff field in February 2001, with production expected to resume in March 2001
Houston, Texas; Oslo, Norway; February 21, 2001: — Petroleum Geo-Services ASA (NYSE: PGO; OSE: PGS) reported today fourth quarter revenue of $210.2 million for 2000, 5% lower than fourth quarter 1999 revenue. Annual revenue of $906.2 million was 15% higher than 1999 revenue. PGS’ revenue mix of geophysical services and production services for the fourth quarter was 52% and 48%, respectively, with an annual mix of 50% for each segment.
Fourth quarter operating profit (before unusual items) was $22.5 million, 23% lower than 1999’s fourth quarter operating profit. Fourth quarter operating profit margin (before unusual items) was also lower, with 11% for 2000 and 13% for 1999. Annual operating profit (before unusual items) was $142.0 million, 10% higher than 1999’s comparable operating profit. PGS’ annual operating profit margin (before unusual items) remained at 16% in 2000 and 1999.
Charges included in unusual items, net in the fourth quarter consisted of: $166.5 million in multi-client library impairment charges, $148.8 million of property, equipment and other asset impairment charges, and $50.5 million in loss contract accruals. These charges were partially offset by the recognition of a $54.7 million gain on the sale of PGS’ shares in Spinnaker Exploration Company, the recognition of a $26.0 million gain on the resolution of contingencies related to a UK lease, and net tax benefits of $58.5 million related to the above items as well as certain other unusual tax charges.
Fourth quarter net income (before unusual items) was basically breakeven at $0.7 million, versus comparable net income of $6.2 million for the 1999 fourth quarter. Fourth quarter diluted earnings per share (before unusual items) were $0.01, versus a comparable $0.06 for the 1999 fourth quarter. Annual net income and diluted earnings per share (before unusual items) for 2000 were $38.9 million and $0.38; the comparable 1999 amounts were $39.1 million and $0.41.
Reidar Michaelsen, Chairman of the Board and Chief Executive Officer, stated, “Two weeks ago, we announced the resignation of Bjarte Bruheim as President and Chief Operating Officer. At that time, we reiterated our strategic commitment to exploiting Ramform dominance in the marine seismic market, maximizing cash generation from our multi-client library, and optimizing our FPSO operations. Going forward, we remain committed to and expect to expand our market-share in the emerging reservoir characterization and monitoring business. Now with renewed focus, we will work to balance these commitments to improve our financial and operational performance. Bjarte was a founder of PGS and instrumental in the development of our business and technical strategies. His vision and experience will be missed; however, I can assure you that the existing management team will continue our culture of entrepreneurship and pioneering technology.”
Michaelsen went on to say, “We were pleased with the sale of our investment in Spinnaker Exploration Company and the execution of a definitive agreement to sell our Petrobank data management and software operations, both occurring in the fourth quarter. We had targeted both of these transactions in our 2000-2001 business plan in order to generate cash for our debt reduction program. With the receipt of $150.5 million in net cash proceeds from the Spinnaker sale, we have proven the success of the business model that PGS and Spinnaker undertook together in 1996. Further, we firmly believe that the Spinnaker business model can be replicated going forward to create additional value for PGS shareholders. The Petrobank transaction is expected to close before the end of February and, at that point, we will realize approximately $179.0 million in gross proceeds. This transaction will generate a substantial gain for our shareholders.”
Review of Geophysical Services Operations
For the fourth quarter, PGS’ geophysical services revenue totaled $108.3 million, down 11% and 8% from the third quarter of 2000 and the fourth quarter of 1999, respectively. The decrease between third and fourth quarter revenue was due to contract seismic activity (multi-client seismic revenue remained relatively constant between the 2000 quarters). The fourth quarter decrease between 2000 and 1999 was attributable to multi-client seismic revenue. Multi-client seismic revenue for the fourth quarter was $61.3 million and carried an average amortization rate of 59%. Total fourth quarter operating profit (before unusual items) from geophysical services was $1.5 million.
Annual geophysical services revenue totaled $455.4 million and was 8% higher than 1999 geophysical services revenue. This year-to-year increase was attributable to the higher level of contract seismic activity experienced during the 2000 “summer shooting season.” Multi-client seismic revenue levels were relatively constant between 2000 and 1999, at $241.0 million and $242.2 million, respectively, and the average amortization rate was 57% for both periods. Annual operating profit (before unusual items) from geophysical services was $38.9 million, representing a 9% operating profit margin.
PGS continues to expect that higher oil and gas prices will prompt greater oil and gas company spending on the application of enhanced production techniques – such as PGS’ PetroTrac™ suite of advanced seismic tools – to existing reservoirs. Additionally, these higher prices, as well as declining oil company reserves, should lead to increased exploration offshore Brazil, West Africa, in the Asia Pacific region, the North Sea, and in the deepwater Gulf of Mexico – areas where PGS has focused its multi-client activity. The future award of exploration and development licenses by host countries in West Africa and the Asia Pacific region should result in incremental revenue to PGS from uplift fees due under previously executed multi-client sales contracts. PGS also expects that a rapidly growing contract market for its high-density Ramform reservoir characterization services will result in a significant increase in marine contract activity, particularly in the North Sea. Furthermore, seismic activity should increase due to a decline in the portfolio of oil and gas company drilling prospects identified prior to the downturn in seismic activity in 1999.
Review of Production Services Operations
During the fourth quarter, the Petrojarl I completed early well test production on the Kyle field and demobilized for an upgrade of its process capability. This upgrade was required by the Glitne contract and we expect a significant portion of the cost to be recouped via this contract. The Petrojarl I remains scheduled to begin production of the Glitne field in mid-2001 and is expected to remain in production on the field for twenty-six to thirty months, with the first eighteen months non-cancelable. Also during the fourth quarter, the Ramform Banff demobilized to Germany, where the planned upgrade to reduce vessel roll motion and improve uptime performance was undertaken. The Ramform Banff returned to the Banff field in February and riser installation is currently underway. PGS expects the Ramform Banff to commence production in March.
For the fourth quarter, production services revenue totaled $101.9 million, down 18% from the third quarter of 2000 and basically level with fourth quarter 1999 revenue of $102.5 million. The decrease between third and fourth quarter revenue was primarily attributable to the suspension of production operations by both the Petrojarl I and the Ramform Banff early in the fourth quarter, as both FPSOs demobilized for upgrade projects. The impact of these suspended operations on the comparable fourth quarter periods was partially offset by greater production from the Petrojarl Foinaven and increased platform services activity in 2000. Fourth quarter operating profit (before unusual items) from production services was $20.9 million, representing a 21% operating profit margin.
Annual production services revenue totaled $450.9 million and was 22% higher than 1999 production services revenue. The increase primarily reflected seven additional production months in 2000 from the Petrojarl Varg (acquired in July 1999), somewhat offset by the suspended fourth quarter operations on the Petrojarl I and the Ramform Banff. Annual operating profit (before unusual items) was $103.1 million, representing a 23% operating profit margin.
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Petroleum Geo-Services’ fourth quarter earnings conference call is scheduled for February 21, 2001 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, February 28, 2001 at 1-800-627-9591 or 1-402-220-0237 for international callers (Passcode: PGS Conference Call).
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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. 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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