Annual Report 2011 - PGS

Board of Directors’ report
the revolving credit facility from 2012 to 2015.
The purpose of the extension is to secure a
longer term liquidity reserve. Margin on the
new revolving credit facility is 225 basis points,
compared with 175 basis points on the previous
facility. As of December 31, 2011, $470.5 million
remained outstanding on the Term Loan B,
while the revolving credit facility was undrawn.
We issued $400 million of convertible notes
in December 2007. The coupon interest rate
on the convertible bond is 2.7 percent and the
conversion price is NOK 216.19 per PGS share.
As of December 31, 2011 we had repurchased
$209.4 million of the nominal value of the
convertible notes, with $190.5 million of
nominal value still outstanding.
In November 2011, we issued $300 million
of Senior Notes due in 2018. The facility was
priced with a coupon of 7.375 percent and
issued at 98.638 percent of the principal
amount. The net proceeds are expected to be
used for general corporate purposes and to
repurchase and repay the outstanding principal
amount of the convertible notes on or prior to
maturity in December 2012.
By extending the maturity of the revolving
credit facility and issuing $300 million of Senior
Notes, the maturity of our debt was extended
from 2.8 years at the beginning of 2011 to 3.9
years as of year-end 2011.
Total interest-bearing debt, including capital
leases, but excluding deferred loan costs,
amounted to $954.5 million as of December
31, 2011, compared with $790.2 million as of
December 31, 2010.
Net interest-bearing debt (interest-bearing debt
less cash and cash equivalents, restricted cash,
and interest-bearing investments) was $394.2
million as of December 31, 2011, compared with
$279.2 million as of December 31, 2010.
PGS’ interest-bearing debt comprises the
following primary components:
As of December 31
2011 2010
(In USD million)
Secured:
Term loan B, due 2015 470.5 470.5
USD 300 million Senior Notes,
due 2018 300.0 ---
Convertible notes:
Convertible notes, due 2012 183.8 319.6
Total 954.5 790.2
Investments
In 2011, total MultiClient cash investments,
excluding capitalized interest, amounted to
$203.9 million, compared with $166.7 million in
2010, an increase of $37.2 million. The increase
is primarily due to a higher general cost
inflation, especially higher fuel cost as a result
of the higher oil price in 2011. More MultiClient
activity in high cost regions also contributed to
increased MultiClient cash investments in 2011,
compared to 2010.
Capital expenditures totaled $279.9 million in
2011, compared with $223.5 million in 2010,
an increase of $56.4 million or 25 percent. The
increase is largely attributable to accelerated
GeoStreamer investments, more vessel
upgrades and yard expenses, and higher capital
expenditures related to vessel new builds.
Financial Market Risk
PGS is exposed to certain market risks,
including adverse changes in interest rates and
foreign currency exchange rates, as discussed
below.
Interest Rate Risk
We enter into financial instruments, such as
interest rate swaps, to manage the impact of
interest rate fluctuations.
As of December 31, 2011, our debt structure
included $470.5 million in floating interest
rate debt, with interest based on three month
LIBOR rates, plus a margin. The fixed interest
rate debt had a book value of $483.7 million.
To reduce the adverse effects of any interest
rate increases, the Company has a portfolio of
interest rate swaps (IRS) with a total nominal
value of $500.0 million, of which $200.0
million is forward starting replacing maturing
swaps. The fair value of the IRS portfolio was
minus $25.5 million as of December 31, 2011.
The swaps are for periods of six months to
3 ¼ years. Taking into account the effect of
interest rate swaps, for every (hypothetical)
one percentage point increase in LIBOR,
the annual net interest expense of our debt,
including finance leases, would decrease by
approximately $1.0 million, given our cash
holdings as of December 31, 2011.
Currency exchange risk
We conduct business primarily in US dollars
(USD), but also in various other currencies,
including Brazilian real, Euro (EUR), Singapore
dollar, Nigerian naira, British pound (GBP),
and Norwegian kroner (NOK). We are subject
to foreign currency exchange rate risk on cash
flows related to sales, expenses, financing, and
investment transactions in currencies other
than the US dollar.
We predominantly sell our products and
services in US dollars, and to a small extent
in other currencies. In addition to USD,
a significant proportion of our operating
expenses are incurred in GBP and NOK. Less
substantial amounts are incurred in Singapore
PGS Annual Report 2011 61