2006 has been a year of decisive progress for PGS - the best year ever in financial results and in value creation for our shareholders. Our commitment to HSE is reflected in continued strengths in processes and results. The 2007 outlook is one of continued strength.

With the demerger of our FPSO activities in Petrojarl mid 2006 PGS is again a dedicated and focused geophysical services company. That has been our strategic objective since successfully restructuring in 2003 and the divestment of our E&P activities in Pertra in 2005. The execution of this strategy has been good and the timing fortuitous, coinciding with a very substantial expansion of the geophysical services markets globally.

Our achievements in the core business during 2006 proved the enormous strengths of PGS as a dedicated geophysical services company. We had the best year ever in terms of vessel operations – the lowest technical downtime, the highest acquisition speed, improvements in total fleet efficiency. We delivered a more than 80% increase in contract EBIT margins on the marine side despite strong industry wide cost inflation. The reentry into the Gulf of Mexico with the huge WAZ-technology Crystal Survey represented a milestone in our new multi-client strategy. Our Onshore business combined substantial activity expansion with strong profitability improvements, successfully entering into Libya and enhancing multi-client activity in North America.

2006 was also a year of important cross-roads and key choices for PGS. We not only demerged Petrojarl. We also concluded after careful evaluations that there was substantially more upside for our shareholders in pursuing a decisive organic growth strategy than to drive for a large-scale acquisition . This organic growth strategy builds on our current areas of strengths – a leadership in seismic 3D marine acquisition through the Ramform vessel fleet and proven operational capabilities. The two new Ramform vessels for delivery early 2008 and mid 2009 are the major expansion steps. The much stronger emphasis on new multi-client and reprocessing of the current multi-client library offshore – the largest in the industry - are also building on current strengths. Doubling multi-client investments both in 2006 and in 2007 underlines this commitment.

But the organic growth strategy also takes us into less proven areas and areas where PGS has not excelled to the same degree. Data processing will expand in a few chosen areas like depth imaging, wide azimuth and multi-azimuth. Introduction and commercialization of selected new technologies have top priority and will include areas like fiber optics, a new generation of streamers and electromagnetics.

It is more valid than ever that a successful strategy is about successful strategy execution. Recruiting the right people and retaining and developing the competent people we have in PGS today will be decisive, as the industry competes intensively for skills and competences. The very comprehensive people development effort we have started in cooperation with Duke Executive Education exemplifies our commitment – this is a battle we intend to win.

In the foreseeable future the seismic industry will continue to be impacted by the strong rise in E&P spending. Oil companies are struggling to halt the downward trend in reserve replacement ratios – and they are struggling to meet their production growth targets. Increasingly, national oil companies are exploring a larger part of their national territories through new seismic surveys. And increasingly international oil companies are seeking access to more advanced seismic technologies to meet the challenge of getting more out of mature areas while reducing the added risk from rapidly climbing drilling cost.

These trends are good news for an advanced seismic operator like PGS. That is why we look towards 2007, 2008 and beyond with considerable confidence.

Svein Rennemo
President and CEO