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April 27, 2001
PGS reports $209.4 million first quarter revenue
Petroleum Geo-Services ASA this week reported first quarter revenue of $209.4 million, only 2% lower than first quarter 2000, despite the loss of revenue from two FPSOs that were undergoing shipyard upgrades during the period. It also announced announced that after ten years of operating its geophysical business under several management teams. the entire geophysical management group will be combined under one cohesive management team led by Anthony "Diz" Mackewn.
PGS' revenue mix of Geophysical Services and Production Services for the 2001 first quarter was 55% and 45%, respectively.
First quarter operating profit (before unusual items) was $25.5 million, 6% lower than 2000's first quarter operating profit. First quarter operating profit margin (before unusual items) was relatively flat, with 12% for 2001 and 13% for 2000. While the overall operating profit was down as compared to the comparable period of the prior year, the Geophysical Services business experienced an 11% increase in operating profit while Production Services, as a result of FPSOs undergoing shipyard modifications, had a decrease of 11%.
Included in unusual items, net in the 2001 first quarter is a $111.9 million after-tax gain related to the sale of PGS' Petrobank data management business and related software to Halliburton and the successful resolution of various tax contingencies.
Chairman and CEO Reidar Michaelsen termed the quarter "very significant for the future development of PGS."
"With Diz Mackewn now leading the Geophysical Services Group and Kaare Gisvold leading one of the industry's most experienced FPSO operations," said Michaelsen, "I believe PGS is well positioned to capture greater market share in its two core businesses. In general, the seismic market is now behaving much better and we see an increase in future demand for our data library and a more balanced supply and demand picture, particularly in the North Sea, Canada and the Asia Pacific regions. As a result, our seismic fleet is experiencing the strongest contract backlog in several years. While our Production Services revenue was lower than originally anticipated, the successful resumption of production by the Ramform Banff in March and the anticipated return of the Petrojarl 1 in July 2001 will increase this revenue going forward."
Sustained higher oil and gas prices have led industry analysts to increase estimates for exploration and development spending in 2001 and 2002. PGS expects that a growing portion of this greater oil and gas company spending will be focused on the application of enhanced production techniques - such as PGS' PetroTrac(TM) suite of advanced seismic tools - to existing reservoirs. Additionally, these higher prices should lead to increased exploration offshore Brazil and West Africa and in the Asia Pacific region, the North Sea, and deepwater Gulf of Mexico - areas where PGS has focused its multi-client activity. The future award of exploration and development licenses by host countries in West Africa and the Asia Pacific region should result in incremental revenue to PGS from uplift fees due under previously executed multi-client sales contracts. PGS also expects that a rapidly growing contract market for its high-density Ramform reservoir characterization services will result in a significant increase in marine contract activity. Furthermore, seismic activity should increase as oil and gas companies look for additional drilling prospects to offset declining production. PGS expects that the improved contract market will result in reduced levels of multi-client investment in the future.
Review of Production Services Operations
The upgrade of the process capability of the Petrojarl I continued throughout the first quarter and the FPSO remains scheduled to begin production of the Glitne field early in the third quarter of 2001. This upgrade, necessary to prepare the vessel for the Glitne Contract, also positions the vessel for further work in the Norwegian sector of the North Sea. The Petrojarl I is expected to remain in production on the Glitne field for twenty-six to thirty months, with the first eighteen months non-cancelable. On March 29, 2001, the re-tooled Ramform Banff resumed production on the Banff field. The Ramform Banff suspended operations in September 2000 to undergo a comprehensive modification program designed to improve vessel roll motions and general vessel operability and to repair damage incurred during extreme weather earlier in the year. Based upon experience to date, we believe the modifications have been successful in addressing previous operational problems. In addition, PGS has filed significant insurance claims which, in total, amount to more than $40 million.
For the first quarter, Production Services revenue totaled $93.3 million, down 8% and 16% from the fourth and first quarters of 2000, respectively. The year over year revenue decrease was primarily attributable to the ongoing upgrade of the Petrojarl I, which did not operate during the first quarter of 2001, the Ramform Banff, which resumed production on the Banff field on March 29 and lower platform services activity. These decreases were partially offset by higher revenue from the spot charter of excess shuttle tanker capacity. First quarter operating profit (before unusual items) from Production Services was $18.4 million, representing a 20% operating profit margin.