Annual Report 2011 - PGS

Board of Directors’ report
delivery of two Ramform Titan-class vessels in
2013, with options for another two vessels to be
delivered in 2015. The estimated cost per vessel,
including seismic equipment, is $250 million.
By ordering new industry-leading capacity,
we continue to strengthen our efficiency lead
and position PGS to take full advantage of a
recovery in the marine seismic market.
Financial Results
Total revenues were $1,253.3 million, compared
to $1,135.1 million in 2010, an increase of
10 percent. Revenues from marine contract
seismic acquisition decreased slightly from
2010, and the contract EBIT margin for the full
year 2011 was 4%, compared to 17% in 2010.
The lower profitability is caused by a sharp
increase in fuel prices, lower utilization and
production as a result of extended yard stays
and maritime issues in the second half of the
year, in addition to reduced profitability on
certain long term contracts.
Total MultiClient revenues (pre-funding and late
sales combined) increased by $111.3 million, or
28 percent, to $501.8 million in 2011, driven by
increased demand for MultiClient. Europe, Gulf
of Mexico and Asia Pacific were the regions
contributing the most to total MultiClient sales.
Cash investment in the MultiClient library
increased by $37.2 million, or 22 percent,
to $203.9 million in 2011. Pre-funding as a
percentage of capitalized cash investment was
110 percent in 2011, compared to 119 percent
in 2010. The decrease in pre-funding level was
driven by lower pre-funding on MultiClient
projects acquired in Asia Pacific and offshore
Australia, where the pre-funding level is
normally lower than in a majority of the other
regions where we operated in 2010. In 2011, the
fleet allocation factor (active 3D vessel time for
marine contract vs. MultiClient data acquisition)
was approximately 72:28, compared to 70:30 in
2010.
Operating costs, which include cost of sales,
expensed research and developments costs,
and selling and general administrative costs,
totaled $718.5 million in 2011 compared to
$659.7 million in 2010, an increase of $58.8
million. The increase primarily reflects a net
growth in vessel and processing capacity as
well as higher fuel costs and an unfavorable
development in the US dollar.
Reported research and development costs
increased by $2.5 million to $24.3 million in
2011. The increase is primarily due to more
activity to develop a towed EM solution ready
for commercial launch in 2012. The research and
development costs mainly relate to efficiency
improvements in the core business activities
of marine seismic acquisition and processing,
as well as our efforts to develop the towed
EM solution. Capitalized development cost
totaled $18.4 million in 2011, compared to $13.2
million in 2010. Capitalized development costs
primarily relate to OptoSeis and towed EM.
As disclosed earlier we implemented a change
of our accounting policy for costs relating to
major overhauls of vessels with effect from
January 1, 2011. The change was made to better
reflect economic reality, reduce volatility and
align accounting with more common industry
practice and general practice among vessel
owning companies. Following this change, PGS
capitalizes all costs relating to major vessel
overhauls and depreciates relevant assets
over the estimated periods between major
overhauls, which typically range from three to
five years. The former policy was to expense
substantially all such costs when incurred.
Reported periods prior to January 1, 2011, have
been restated accordingly
Depreciation and amortization for full year 2011
amounted to $397.9 million compared to $344.9
million in 2010, an increase of $53.0 million or
15 percent.
Depreciation increased by $13.4 million.
Depreciation increased due to full year effect
of PGS Apollo, which entered operations
mid May 2010, investments in GeoStreamer
and equipment on the chartered 2D vessel
Sanco Spirit, partially offset by an increase
in depreciation capitalized to the MultiClient
library and de-rigging of the Beaufort Explorer
during Q1 2011.
MultiClient amortization for 2011 increased by
$39.5 million, or 20 percent compared to 2010.
MultiClient amortization as a percentage of
total MultiClient revenues was 47 percent in
2011, compared to 51 percent in 2010. The net
book value of our MultiClient library was $334.1
million as of December 31, 2011, compared to
$310.8 million as of December 31, 2010.
In 2011, we recorded a net impairment charge
on long-lived assets of $2.6 million.
In 2011 we participated in the establishment of
the E&P focused investment company Azimuth
Ltd. (Azimuth) primarily by contributing
our existing equity holdings in smaller E&P
companies. We own 45 percent of Azimuth and
have entered into a cooperation agreement
whereby we provide certain services to Azimuth
and whereby Azimuth has the right to buy,
for cash and at fair value, up to 50 percent of
any future equity settlement that PGS may
receive as payment for its library services.
This transaction resulted in other operating
income of $4.4 million. PGS has no obligation
to provide further funding to Azimuth and has
no guarantees outstanding.
Operating profit in 2011 was $138.7 million.
PGS Annual Report 2011 59