Annual Report 2011 - PGS

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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
Notes to the consolidated financial statements NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Note 19 - MultiClient Library The components of the MultiClient library are summarized as follows: December 31, (In thousands of dollars) 2011 2010 Restated(a) Balance as of January 1, 310,843 293,238 Cash investments 203,922 166,711 Capitalized interest 6,409 5,894 Capitalized depreciation 49,966 42,507 Amortization expense (237,005) (197,460) Other --- (47) Balance as of December 31, 334,135 310,843 (a) See note 2 Amortization expense for the year ended December 31, 2011 includes $19.5 million of additional non-sales related amortization. This amount includes $17.0 million in minimum amortization and $2.5 million of impairments to reflect the fair value of future sales on certain individual surveys. For the year ended December 31, 2010 the additional non-sales related amortization totalled $26.6 million, of which $13.5 million in minimum amortization, $13.8 million of impairments and $0.7 million in reversal of previous recorded impairments. For the year ended December 31, 2009, the additional non-sales related amortization totalled $24.7 million, of which $10.1 million in minimum amortization and $15.0 million of impairments and $0.4 million in reversal of previous recorded impairments. The net carrying value of the MultiClient library, by the year in which the surveys were completed, is summarized as follows: December 31, (In thousands of dollars) 2011 2010 Completed surveys Completed during 2006 and prior years --- 348 Completed during 2007 664 4,627 Completed during 2008 24,986 31,380 Completed during 2009 92,925 120,618 Completed during 2010 36,590 48,082 Completed during 2011 63,333 --- Completed surveys 218,498 205,055 Surveys in progress 115,637 105,788 MultiClient library 334,135 310,843 For information purposes, the following shows the hypothetical application of the Company's minimum amortization requirements to the components of the existing MultiClient library. These minimum amortization requirements are calculated as if there will be no future sales of these surveys. December 31, 2011 Future minimum (In thousands of dollars) amortization During 2012 35,142 During 2013 70,286 During 2014 69,600 During 2015 46,225 During 2016 72,182 During 2017 40,700 Future minimum amortization 334,135 Because the minimum amortization requirements generally apply to the MultiClient library on a survey-by-survey basis rather than in the aggregate, the Company may incur significant minimum amortization charges in a given year even if the aggregate amount of ordinary amortization charges recognized exceeds the aggregate minimum amortization charges above. PGS ANNUAL REPORT 2011 24 PGS Annual Report 2011 95
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