Annual Report 2011 - PGS

Letter from the CEO
Our MultiClient business
performed well in 2011,
with solid pre-funding
and record late sales
revenues.
Dear Fellow
Shareholder
Strong MultiClient revenues boosted PGS’
financial performance despite the challenging
2011 market. The introduction of PGS’
GeoStreamer GS strengthened our technology
leadership and ability to deliver superior
seismic data quality. A strong balance sheet
and delivery of two Ramform Titan-class
vessels in 2013 will position PGS for future
growth in a seismic market with improving
fundamentals.
Our MultiClient business performed well
in 2011, with solid pre-funding and record
late sales revenues. The advances made by
MultiClient prove that the reorganization of
the Company completed in 2010, following
sale of our Onshore business, is delivering the
expected results.
Over the cycle, we have experienced
MultiClient profitability to be less volatile than
proprietary contract work, given its concept of a
pre-funding stage and late sales potential over
a period of several years after data acquisition
and processing have been completed.
To optimize profitability and cash flow over
the cycle, PGS proactively allocates vessel
resources between MultiClient and Marine
Contract. In a weak market, more capacity is
allocated to robust MultiClient projects with
a pre-funding rate in the range of 80-120
percent of the capitalized cash investment.
We maximize profit by executing more Marine
Contract work in a strong market. A trend
towards more MultiClient business industry
wide raises the industry’s barriers to entry
and underlines the importance of a strong
MultiClient organization in a vessel owning
company. Developing attractive projects
requires a skilled organization of geologists and
geophysicists and PGS retains and develops
these skills through its Reservoir organization
with resources similar to a medium sized oil
company.
The market for marine seismic was
characterized by overcapacity in 2011, leading
to low profit margins for contract work and
less demand for low-end 3D vessels. PGS’
Marine Contract business also experienced
weak utilization and productivity in the second
half of the year primarily due to extended
yard stays and downtime caused by maritime
issues. These factors combined with higher fuel
costs and a weaker US dollar, reduced Marine
Contract’s operating profit margin to four
percent for the full year.
A profit improvement program was initiated
in late 2011. The program targets a $50 million
EBIT run-rate improvement by year-end 2012.
Measures include general cost cutting, several
procurement initiatives, operation-specific
cost reductions, and work-flow process
improvements, including management of yard
stays and logistics at all levels.
Our successes in the high density (HD)
segment contributed further to growth in the
data processing business in 2011. Proprietary
GeoStreamer processing, best-in-class imaging
tools and ultrafast velocity model building
capabilities using hyperBeam added to our
market-share momentum. This was limited
only by our ability to grow our Data Processing
organization fast enough in terms of skilled
geophysicists.
The HD market segment is best served by
PGS’ high capacity Ramform vessels and
cutting-edge technology. Demand for HD
seismic is driven by deepwater exploration
and production in geologically complex areas
such as offshore Brazil, West Africa and the
Gulf of Mexico. The HD market is growing
faster than the general seismic market. Our
HD market share will increase further when
we take delivery of two Ramform Titan-class
vessels in 2013. The Ramform new building
contract awarded to Mitsubishi Heavy
Industries Ltd. in April 2011 includes an option
to build two additional sister ships. The vessels
feature the design strengths demonstrated
by today’s Ramform fleet with several
capability enhancements across a series of key
technologies.
In 2011, we reinforced our position in the
HD market through continuing to rollout our
8 PGS Annual Report 2011