In 2006, PGS delivered its best result ever and substantially improved its financial position. Our operating and HSE performance continued at a strong level.

With the demerger of our production segment, Petrojarl, in June 2006, we became a focused geophysical company. Our emphasis going forward is growing our business.

Revenues in USD million (US GAAP)

Adjusted EBITDA in USD million (US GAAP)

Business headlines 2006
In 2006 we:

• Successfully de-merged our production activity, Petrojarl. Our shareholders received shares in
  Petrojarl valued at USD 541 million as of December 31, 2006. PGS received net cash USD 396 million through the demerger and public offering
• Continued our strong safety performance with a lost time incident frequency (LTIF) of 0.31, compared to 0.33 in 2005
• Achieved a strong full-year operating cash flow of USD 563 million and a significant debt reduction of USD 657 million
• Significantly improved our Marine seismic contract operating profit margins, to approximately 40%, compared to 20% in 2005
• Increased our Onshore revenues and Onshore operating profit by USD 111 million and USD 47 million, respectively
• Achieved very high pre-funding levels (131% of capitalized investments) and strong multi-client late sales of USD 249 million
• Re-entered Gulf of Mexico with a new, large multi-client survey
• Started new build programs to deliver two new and enhanced Ramform vessels.

In addition, during the first five months of 2007 we have started executing our share repurchase program and entered into a Heads of Agreement with the Japanese Ministry of Economy, Trade and Industry (METI) which will include the sale of Ramform Victory. We have proposed to pay a special dividend of NOK 10 per share and commenced an evaluation of a delisting of our ADSs from the New York Stock Exchange and a deregistration of our ADSs and shares under the US Securities Exchange Act of 1934.

Markets and main businesses

Marine
We are one of three major global participants in the marine 3D market, with a market share of approximately 28%. Our streamer acquisition fleet, totaling eleven 3D vessels at year-end 2006, with the six Ramform vessels in the high-capacity segment, is one of the most modern in the industry.

The marine 3D market experienced a strong improvement in 2006 driven by increased demand for seismic from oil and gas companies. The margin we realized on contract seismic improved significantly compared to 2005. At the end of 2006, our order backlog in Marine was approximately USD 512 million, compared to USD 365 million at December 31, 2005.

Contract seismic continued to dominate our activity in 2006, although the investments in new multi-client data increased further compared to 2005. Pre-funding of new multi-client investments continued at higher levels and late sales for the year came in significantly higher than anticipated at the beginning of 2006.

Onshore
In the market for onshore seismic services we are one of the larger worldwide operators. The onshore segment remains price competitive, since a number of competitors have added capacity and additional companies have entered the international seismic market.

In 2006, PGS Onshore had substantial activity in the US and North and West Africa. Strong operating performance in North Africa, coupled with high interest for multi-client data in the US, were the main contributors to a substantial improvement in the operating result in 2006, compared to 2005. PGS Onshore continued to invest in its multi-client library onshore US in 2006. However, the majority of the crews performed contract work.

Financial results
Total revenues for 2006 based on US GAAP were USD 1 308.5 million compared to USD 888.0 million in 2005, an increase of 47%.

Marine 2006 revenues totaled USD 1 044.5 million, an increase of USD 319.8 million, or 44%, from 2005. Revenues from contract seismic acquisition increased USD 211.4 million from USD 424.2 million in 2005 to USD 635.6 million in 2006, primarily due to a stronger marine seismic market and strong operating performance. Multi-client late sales increased by USD 3.2 million, or 1%, to USD 222.0 million in 2006. Marine increased its investments in multi-client data by USD 35.0 million, or 76%, to USD 81.2 million in 2006. Revenues from multi-client pre-funding increased by USD 91.3 million, or 228%, from USD 40.0 million in 2005 to USD 131.3 million in 2006. Pre-funding as a percentage of cash investments in multi-client data increased to 162% in 2006 compared to 87% in 2005. In 2006 the fleet allocation (active vessel time) between contract and multi-client data acquisition was approximately 83%/17% compared to approximately 91%/9% in 2005.

Onshore revenues for 2006 totaled USD 263.4 million, an increase of USD 110.9 million or 73% from 2005. Onshore had three crews in activity in Libya during 2006, which all commenced acquiring seismic in Libya in early 2006, as well as significant activity in the domestic US. At the same time, Onshore started up a project in Nigeria in October 2005, which contributed to revenues throughout 2006. The projected was completed in December 2006, and Onshore has as of March 2007 no activity in Nigeria.

Cost of sales totaled USD 620.7 million in 2006 compared to USD 498.3 million in 2005, an increase of USD 122.4 million or 25%.

Marine cost of sales increased by USD 62.7 million, mainly as a result of increased salaries and social expences, material and supplies and general operating expences as a result of increased activity and number of employees, partly offset by increased investments in multiclient library. Onshore cost of sales increased by USD 65.2 million, primarily related to increased activity.

Research and development costs increased by USD 7.8 million or 79% to USD 17.7 million, while selling, general and administrative costs increased by USD 6.1 million or 11% to USD 61.5 million. The primary reasons for the increase are increased bonus expences, increased compensation costs and increased activity. In addition, we are spending more on technology development and on chartered capacity and similar measures to optimize the productivity of our 3D vessels. There has been a strong general cost level increase for fuel, personnel and project-related costs, such as support and shooting vessels.

Depreciation and amortization for 2006 was USD 198.6 million compared to USD 208.6 million in 2005, a decrease of USD 10.0 million, or 5%.

Multi-client amortization for 2006 decreased by USD 8.3 million (6%) compared with 2005. Amortization for 2006 includes USD 6.7 million of non-sales related amortization, compared to USD 35.4 million in 2005. Multi-client amortization as percentage of multi-client revenues was 32% in 2006, compared to 46% in 2005.

In 2006, we reduced the book value of our multi-client library by USD 92.7 million as a result of the recognition of deferred tax assets, which had been offset by full valuation allowance when we adopted fresh-start reporting. As such, this reduction is not a policy or judgment relating to our mulit-client library, but instead reflects the application of SOP 90-7. The net book value of our multi-client library was USD 49.4 million as of December 31, 2006, compared to USD 146.2 million as of December 31, 2005. The relatively low book value will result in relatively low ordinary amortization relating to sales from our existing library, while amortization relating to sales from new library investments will be higher.

Operating profit was USD 409.9 million in 2006 compared to an operating profit of USD 130.2 million in 2005.
Interest expense was USD 53.2 million in 2006 compared to USD 95.8 million in 2005 primarily due to a substantial reduction of debt and reduced interest rates on debt. Other financial items, net amounted to a loss of USD 0.6 million in 2006 compared to a loss of USD 103.1 million in 2005.

The 2005 financial statements included a charge of USD 107.3 million relating to debt premiums and refinancing costs since we in December 2005 repaid/refinanced our USD 250 million 8% Senior Notes due 2006 and USD 741.3 million of our USD 746 million 10% Senior Notes due 2010.

Income tax expense was an expense of USD 123.7 million in 2006 compared to an expense of USD 24.4 million in 2005. The tax expense in 2006 included current taxes of USD 63.7 million and net deferred tax expenses of USD 60.0 million. Taxes payable related primarily to foreign taxes in regions where we are subject to withholding taxes or deemed to have permanent establishment and where we had no carryover losses.

Income from discontinued operations, net of tax, was USD 69.2 million in 2006 compared to USD 209.6 million in 2005. The income from discontinued operations in 2006 primarily relates to the demerger of our Production segment and the related sale of shares in Petrojarl, while the result from discontinued operations in 2005 included a gain from the sale of our subsidiary Pertra of USD 157.9 million as well as the operating result of our production segment.
Net income for the group for 2006 was USD 298.6 million compared to USD 112.6 million in 2005.

Demerger of our production business
On June 29, 2006 we completed the demerger plan to separate our geophysical and production businesses into two independently listed companies.

Our subsidiary companies that conduct the production business, and the assets, rights and liabilities related to the production business were transferred to a wholly-owned subsidiary named Petrojarl ASA. Our subsidiary companies that conduct the geophysical business, and the assets, rights and liabilities related to the geophysical business, were retained under Petroleum Geo-Services ASA.

Each holder of our ordinary shares received one ordinary share of Petrojarl for each of our shares held, and each holder of American Depositary Shares (“PGS ADSs’’) representing our ordinary shares received one American Depositary Share representing an ordinary share in Petrojarl (“Petrojarl ADSs’’) for each PGS ADS held. The ordinary shares in Petrojarl ASA started trading on the Oslo Stock Exchange June 30, 2006. Petrojarl was not listed in the US.
Immediately after consummation of the demerger, PGS ASA held shares in Petrojarl representing a 19.99% interest in Petrojarl. These shares were subsequently sold in third quarter 2006, and we hold no shares in Petrojarl as of December 31, 2006.

Upon completion of the demerger and IPO of Petrojarl, on June 29, 2006, we received net cash proceeds from the capitalization and demerger of Petrojarl of USD 269.8 million. We received in addition USD 126.1 million, net of expense, as settlement for the sale of 19.99% of the outstanding shares in Petrojarl. We used the proceeds to repay parts of our term-loan.

Cash flow, balance sheet and financing
Net cash provided by operating activities totaled USD 563.4 million in 2006 compared to USD 280.7 million in 2005, primarily driven by strong improvement in profit.

Cash and cash equivalents (excluding restricted cash) totaled USD 124.0 million at December 31, 2006 compared to USD 121.5 million at December 31, 2005. Restricted cash totaled USD 18.7 million at December 31, 2006 compared to USD 22.5 million at December 31, 2005.

During 2006 we reduced our financial debt by using cash flow from operations, as well as cash from the demerger of Petrojarl, to reduce our originally USD 850 million term loan. As of December 31, 2006, USD 243.6 million was outstanding under the term loan. We have a credit facility of USD 150 million, which matures in December 2010. At December 31, 2006, USD 3.5 million of non-expired letters of credits were issued under the facility, whereas USD 146.5 million were available for drawing. We do not expect to reduce our financial leverage significantly going forward.
The term loan matures in December 2012 and has a floating interest rate of LIBOR plus 225 basis points.
The nominal value of interest bearing debt, including capital leases, was approximately USD 338 million as of December 31, 2006 compared to USD 980 million at December 31, 2005.

Our interest bearing debt consisted of the following primary components at December 31:

Total 338 980Net interest bearing debt (interest bearing debt, including capital leases, less cash and cash equivalents, restricted cash and interest bearing investments) was approximately USD 195 million at December 31, 2006 compared to USD 829 million at December 31, 2005.

Investments
During 2006, we made a total cash investment of USD 113.7 million in multi-client data library compared to USD 55.7 million in 2005, an increase of USD 58.0 million, or 104%.

Capital expenditures, excluding discontinued operations, totaled USD 165.4 million in 2006 compared to USD 90.4 million in 2005, an increase of USD 75.0 million. Capital expenditures in Marine increased by USD 74.2 million to USD 146.4 million in 2006. The increase relates primarily to our ongoing new building programs.

Financial market risk
We are exposed to certain market risks, including adverse changes in interest rates and foreign currency exchange rates, as discussed below.

Interest rate risk
We enter into financial instruments, such as interest rate swaps, to manage the impact of possible changes in interest rates.

As of December 31, 2006, we had total outstanding indebtedness of USD 338.2 million of which USD 257.7 million bore interest at a variable rate based on USD LIBOR plus a margin. Through interest rate swaps we have fixed the interest rate on USD 175 million of the term debt as of December 31, 2006. For every one percentage point
increase in the LIBOR rate our annual interest expense will increase by approximately USD 0.8 million.

Currency Exchange Risk
We conduct business in various currencies including the Bangladeshi taka, Bolivian boliviano, Brazilian real, Indian rupee, Kazakhstan tenge, Mexican peso, Nigerian naira, Saudi riyal, United Arab Emirates dirham, Venezuelan bolivar, British pound and the Norwegian kroner. We are subject to foreign currency exchange rate risk on cash flows related to sales, expenses, financing and investing transactions in currencies other than the U.S. dollar.

Our cash flow from operation is primarily denominated in US dollars (USD), British pounds (GBP) and Norwegian kroner (NOK). We predominantly sell our products and services in US dollars while a significant portion of our operating expenses are incurred in British pounds and Norwegian kroner. We therefore typically have higher expenses than revenue denominated in British pounds and Norwegian kroner.

In 2005 we started hedging a portion of our foreign currency exposure related to operating expenses by entering into forward currency exchange contracts. While we enter into these contracts with the purpose of reducing our exposure to changes in exchange rates, we do not account for the contracts as hedges except if they are specifically designated to firm commitments. Consequently, these forward currency exchange contracts are recorded at estimated fair value using the mid rate and gains and losses are included in other financial items, net. In 2006 we hedged the payment that will be made in non USD for our two new vessels to be built. The hulls will be paid for in NOK and currency hedges put in place for these exposures are treated as fair value hedges in our accounts. As of
December 31, 2006, we had net open forward contracts to buy British pounds, Norwegian kroner and Euro amounting to approximately USD 314 million with a fair value of USD 6.2 million (gain), which has been recognized in our statements of operations. Of this amounts a notional value of USD 124.5 million is accounted for as fair value hedges.

At December 31, 2005, comparable figures were USD 194 million in nominal value of forward contracts with a fair value of USD 7.2 million (loss).

If Norwegian kroner had appreciated by a further 10% against the US dollar at year-end, the fair value of the forward contracts on buying Norwegian kroner would have increased by USD 25.7 million, a similar 10% appreciation of British pounds against US dollar would have increased the fair value of the forward contracts on buying British pounds by USD 5.7 million and a 10% appreciation for Euro would have decreased the fair value of the forward contracts on buying Euro by USD 0.06 million.

Substantially all of our debt is denominated in US dollars.

Credit risk
Our trade receivables are primarily from multinational integrated oil companies and independent oil and natural gas companies, including companies owned in whole or in part by foreign governments. We manage our exposure to credit risk through ongoing credit evaluations of customers. Further, we believe that our exposure to credit risk is relative low due to the nature of our customer base, the long-term relationship we have with most of our customers and the historic low level of losses on trade receivables.

Liquidity risk
As described above, at year-end we had a cash balance of USD 124.0 million and an unused USD 146.5 million secured revolving credit facility (maturing December 2010). We also have an additional overdraft facility of NOK 50 million.

Based on the year-end cash balance, available liquidity resources and the current structure and terms of our debt, we believe that we have adequate liquidity to support our operations and our investment program and that liquidity risk is at acceptable levels. In the first quarter of 2007, we used USD 49 million to repurchase shares. Further repurchase of shares as well as the special dividend of USD 300 million, is estimated to require additional funding if we keep a liquidity reserve of USD 150 million.

Commodity Risk
In the operation of our seismic vessels we use a substantial quantity of fuel. We are therefore exposed to changes in fuel prices. Based on our fuel consumption in 2006, if fuel prices were to increase by 10%, our fuel costs would increase by approximately USD 8 million. We do not hedge this exposure.

Shares and share capital
Our Extraordinary General Meeting on December 13, 2006, approved the split of our shares in the ratio of three-for-one. Following the split, and as of December 31, 2006, we have 180 000 000 shares issued and outstanding, all of which are of the same class and with equal voting and dividend rights. Each share has a par value of NOK 3.

Our shares are listed on the Oslo Stock Exchange. Our American Depositary Shares (“ADSs”) are listed on the New York Stock Exchange.

In general, any future dividend will be subject to determination based on our results of operations and financial condition, our future business prospects, any applicable legal or contractual restrictions and other factors that the Board of Directors considers relevant.

As of December 31, 2006, we had obtained shareholder authorization for a share repurchase program for up to 10% of our share capital. The authorization is valid until July 2007. We expect to propose an extension of the authority to the annual general meeting in June 2007.

Subsequent events
In January 2007 we started executing the share buy back program. As of May 30, 2007, we have repurchased in total 3 746 500 own shares, representing 2.08% of total shares outstanding.

In March 2007 we terminated the UK lease for Ramform Victory and took formal ownership of this vessel.

In March 2007 we entered into a Heads of Agreement with the Japanese Ministry of Economy, Trade and Industry (METI) for a long-term cooperation agreement, which will include the sale and flag change of the 3D seismic vessel Ramform Victory and the continued provision by PGS of intellectual property, technical and operational services.
In May 2007 we proposed to pay a special dividend of NOK 10 per share and commenced an evaluation of a delisting of our ADSs from the New York Stock Exchange and a deregistration of our ADSs and shares under the US Securities Exchange Act of 1934.

Outlook
We have a strategy to grow our business. This strategy builds on current strengths, including our leadership position in marine 3D seismic acquisition through the Ramform vessel fleet and proven operational capabilities. Our fleet expansion program includes two next generation Ramform vessels for delivery early 2008 and mid 2009 and represents major steps both in capacity expansion and technological advancement.

We will have stronger emphasis on investments in new multi-client data and reprocessing.
We intend to grow substantially our data processing business with a strong focus on depth processing and wide- and multi-azimuth processing. We put strong emphasis in technology and will invest in technology to further enhance efficiency of operations and in bringing new technologies to the market. Investments in technology will increase with a focus on commercializing of selected new technologies.

The markets in which we operate showed strong improvement in 2006. Oil prices remained at high levels, and oil companies increased their exploration and production (E&P) spending. E&P spending is expected to increase further in 2007 and in the medium to long term high oil price levels are expected to positively impact our core markets.

The global marine seismic fleet was at full capacity utilization in 2006. Demand is expected to increase further in 2007, outweighing increases in marine seismic capacity and resulting in further improved prices. However, as the industry is operating at full capacity, we experience significant cost inflation, which we expect to continue in 2007.
In Marine we expect our 2007 streamer contract EBIT margins to increase substantially over 2006. The multi-client revenues are expected to be higher than 2006, while both multi-client investments and capital expenditures are planned to approximately double from 2006.

In 2007 we expect Onshore to continue to deliver strong results and plan to increase our multi-client investments and capital expenditures significantly compared to 2006.

We emphasize that forward looking statements contained in this report are based on various assumptions made by us that are beyond our control and that are subject to certain risks and uncertainties as disclosed in our filings with the Oslo Stock Exchange and the US Securities and Exchange Commission. Accordingly, actual results may differ materially from those contained in the forward looking statements.

FINANCIAL CALENDAR 2007

Q2 2007 Earnings Release
July 26, 2007

Q3 2007 Earnings Release
October 24, 2007