Annual Report 2011 - PGS

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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
To optimize profitability and cash flow over the cycle, PGS proactively allocates vessel resources between MultiClient and Marine Contract. Jon Erik Reinhardsen President and Chief Executive Officer PGS Annual Report 2011 9
Page 1 and 2: Operations Annual Report 2011 www.p
Page 3 and 4: Key Financial Figures Key Financial
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