Annual Report 2011 - PGS

Notes to the consolidated financial statements
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
In fourth quarter 2011, the Company recorded impairments on vessels and equipment of $2.6 million which consists of adjusted
estimates of impairment on the cancelled Arrow new builds in Spain of $4.6 million and reversal of impairment on previously
impaired equipment to be used on the vessels in construction of $2 million. See also below “Arrow vessels”.
In 2010, the Company recorded impairments on vessels and equipment of $94.3 million as a result of identifying impairment
indicators, including adjusting the carrying amount of the NB 535 to estimated recoverable amount upon cancellation of the
shipbuilding contract. In addition, the Company recognized a reversal of previously recognized impairments of $15.2 million
related to NB 532 and 533, partly included as long-term asset at December 31, 2010 (see Note 21).
In 2009, the Company recorded impairments on vessels and equipment of $151.2 million as a result of identifying impairment
indicators including adjusting the carrying amounts for Geo Atlantic (held–for-sale) to estimated market value and adjusting the
carrying amount for NB’s 532 and 533 to estimated recoverable amount. See also Note 16 for the impairment recognized in
2009 on Polar Pearl.
The net book value of property and equipment under UK leases were $91.1 million and $145.9 million at December 31, 2011
and 2010, respectively. See Note 27 for further description of these leases and the accounting impact of certain lease
terminations.
For details of the estimated useful lives for the Company's property and equipment at December 31, 2011, see Note 2.
New-build program - Ramform vessels
In April 2011, the Company ordered two Ramform Titan-class vessels, with an option for another two vessels, from Mitsubishi
Heavy Industries Ltd. The vessels are the first in a new generation of Ramform vessels. Agreed deliveries of the two first
vessels are in 2013, and progress is according to plan. The options for delivery of the two additional vessels in 2015 are valid to
mid April 2012.
The estimated total cost for each of the Ramform Titan-class is approximately $250 million, including commissioning and a
comprehensive seismic package, but excluding capitalized interest. The agreement with the shipyard provides for payment
based on five defined milestones, with 50% payable at delivery. Seismic equipment is procured by PGS separately from the
shipbuilding contract. Per December 31, 2011, the Company has paid $53.2 million in installments and equipment purchases.
New-build program – Arrow vessels
Upon the acquisition of Arrow in 2007, the Arrow Group was constructing four 10-12 streamer seismic 3D vessels at the
Factorias Vulcano shipyard group in Spain (the Arrow NB’s). The first two vessels (NB 532 and 533) were chartered to
WesternGeco (“WG”), whereas the other two (NB 534 and 535), were intended to be a part of PGS seismic operations when
completed.
The Arrow Group cancelled the contracts for NB’s 532 and 533 in March and August 2009, respectively due to delays. In March
2010, the Company took delivery of the NB 534 PGS Apollo and in the third quarter NB 535 was cancelled.
WG was released from its obligations under the charter in connection with these cancellations of NB’s 532 and 533. The yard
disputed the Arrow Group’s right of termination of NB’s 532 and 533, and initiated arbitration proceedings in Norway against the
Arrow companies holding each shipbuilding contract. In both arbitration cases, the yard was ordered to pay the respective Arrow
companies the full amount claimed of EUR 39.7 million per vessel, as well as interest and legal costs. The portion of the
awarded amounts covered by the bank refund guarantees, approximately EUR 32 million plus interest of approximately
EUR 5 million on each vessel were received in 2010.
In 2010, Arrow received approximately EUR 45 million as repayment of all prepaid instalments on NB 535 with addition of
interest. The payment was made by the bank of the Spanish shipyard Factorias Juliana following an undisputed cancellation of
the vessel.
For the cancelled Arrow vessels, NB 532 and NB 533, approximately EUR 7 million per vessel with the addition of interest, is
still outstanding from Factorias Vulcano. Factorias Vulcano has entered into Spanish bankruptcy proceedings and the outcome
of these proceedings is still not decided. Arrow is currently taking steps to recover the values. The net book value of PGS
exposure to the Spanish yard is approximately $9 million.
Upon delivery of PGS Apollo the Company entered into a Spanish lease structure which expired in 2011, see Note 27.
23 PGS ANNUAL REPORT 2011
94 PGS Annual Report 2011