Annual Report 2011 - PGS

Board of Directors’ report
Commodity Risk
Operation of our seismic vessels requires
substantial fuel purchases. Thus, we are
exposed to changes in fuel prices. Based on our
fuel consumption in 2011, a 10 percent increase
in fuel prices would increase our total fuel costs
and operating expenses by approximately $1.0
million per month. We changed our approach
to fuel price risk during 2011, seeking to pass
fuel price risk to the customer in a majority of
contracts.
Operational and Other Risks
Demand for our products and services are
dependent upon the level of spending by oil
and gas companies on hydrocarbon-resource
exploration, field development, and production.
Spending levels are heavily influenced by oil
and gas prices. In addition to the risk of less
demand for our services or for data from our
MultiClient data library, we are subject to a
large number of other risk factors including,
but not limited to increased competition, the
attractiveness of our technology, changes
in governmental regulations affecting our
markets, technical downtime, licenses and
permits, and operational hazards such as
weather conditions.
Contracts for services are occasionally modified
by mutual consent and in certain instances
may be cancelled by customers on short notice
without compensation. Consequently, the
order book as of any particular date may not
be indicative of actual operating results for any
succeeding period.
Shares, Share Capital, and Dividend
The Company has 217,799,997 shares issued
and outstanding, all of which are of the same
class and with equal voting and dividend rights.
Each share has a par value of NOK 3.
Our ordinary shares are listed on the Oslo
Stock Exchange (ticker: PGS) and denominated
in Norwegian kroner (NOK). The PGS share
continues to be traded as an American
Depositary Share (ADS) on the US Pink Sheets
(ticker: PGSVY). Quotes are denominated in US
dollars and each ADS represents one share.
The Board of Directors propose to the Annual
General Meeting in 2012 a dividend for the
year ended December 31, 2011 of NOK 1.10 per
share, in line with earlier announcements. PGS
has a dividend policy aiming at distributing
25-50 percent of net income as dividends over
the business cycle. Proposals for dividend
distribution in future years will be subject
to assessments of business performance,
operating environment, and growth
opportunities in determining the appropriate
level in any specific year.
At the AGM held May 11, 2011, the authorization
for share repurchases of up to 10 percent of
our share capital, initially granted in 2006, was
extended for another year. We plan to propose
a similar authorization at the May 2012 AGM for
the subsequent year.
It has been an ongoing practice of PGS
shareholders to grant limited authorizations to
the Board of Directors permitting it to increase
the Company’s share capital and/or acquire
the Company’s shares (treasury shares) for
certain defined purposes. Separate General
Meeting votes are held for (a) authorizations
related to employee stock option programs and
(b) authorizations for other purposes. When a
proposed authorization encompasses share
capital increases and/or acquisition of treasury
shares for various purposes, the Company
does not find it practical to hold separate votes
for each proposed purpose. Authorizations are
time-limited; they expire at the following AGM.
As of December 31, 2011, the Company held
1,223,921 treasury shares, primarily to be able
to satisfy the exercise of options granted under
our employee option programs.
Events After the end of the Reporting Period
Subsequent to December 31, 2011 the Company
has repurchased a further $144.0 million of
principal amount of its convertible notes at
an average price of 100.67% of par. Following
these transactions PGS has bought back a
total of $353.4 million of principal amount,
representing 88% of the $400.0 million principal
amount originally issued. According to the loan
agreement PGS can redeem all of the Notes
outstanding at their principal amount if it has
repurchased and cancelled more than 85%
of the principal amount issued. On February
20, 2012 PGS announced its intention to
exercise the option to redeem the remaining
outstanding Notes, including accrued but
unpaid interest up until the redemption date set
to be March 16, 2012. On March 16, 2012 note
holders for a nominal amount of $1.1 million
requested that their notes were converted to
shares. This was effectuated on March 20, 2012
when the Company transferred 28,079 of its
treasury shares as settlement. The remaining
outstanding amount was redeemed and
cancelled on March 22, 2012.
Organization
PGS had an average of 2,145 and 2,090 regular
active employees during the years ended
December 31, 2011 and 2010 respectively
(excluding employees in the Onshore division
which was sold in 2010).
As an employer we strive for balance and
equality with respect to gender, age, and
cultural diversity among our staff. As of
December 31, 2011, our employees represented
72 nationalities; 31 percent of our office based
PGS Annual Report 2011 63