Letter to Shareholders

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2018 was the first full year we operated under the new organizational structure following a comprehensive streamlining of our organization, which significantly reduced our cost base.

Despite a continued challenging market, I am pleased to report that we have substantially improved our financial performance during the year. While the market is still challenging, we saw some improvement during 2018. With our lower run-rate cost base and improved earnings potential, we are well positioned to deliver positive results and significant free cash flow going forward.

We had an encouraging start to 2018, with solid MultiClient sales from a geographically diverse MultiClient data library and a generally high prefunding level for ongoing MultiClient projects. The underlying sentiment was positive for most of the year, and the oil price steadily increased for the first nine months.

The marine contract market benefitted from a growing need among oil and gas companies to replace reserves and extract more from producing fields. We experienced a good year-over-year price increase for contract work, driven by a better market and more production seismic (4D) in the mix. Oil and gas companies recognized the value of higher quality data when surveying producing fields and were willing to pay a premium price for 4D data, which is usually higher density compared to exploration 3D surveys.

Going into the winter season, demand weakened with the increased oil price volatility. The order book reduced and it became challenging to build vessel continuity, leading to idle time, especially in the fourth quarter. Utilization towards the end of the year was also negatively impacted by factors that became more difficult than we anticipated, such as longer processes for formalizing projects, changes of project timing and permitting delays.

The oil price was lower and more volatile during the last three months of the year. However, we did not see any significant changes in clients’ year-end spending plans, or any bids for contract work pulled from the market. Longer-term the oil price is of importance to how our clients prioritize and spend on seismic.

I am very pleased to report that we achieved an outstanding MultiClient performance, with late sales setting a new record, by a solid margin. This is concrete evidence of the attractiveness of our MultiClient data library, as well as demand for quality data among our clients.

Our revenues were flat in 2018, compared to the previous year, while our EBITDA and EBIT improved significantly, mainly because of the reorganization and a comprehensive cost reduction in all parts of the Company. We achieved our key financial goal for 2018 of becoming cash flow positive after debt service measured as Segment revenues less gross cash cost, capex, taxes, interest and scheduled debt repayments.

Over the last four years, our industry has changed and moved toward the MultiClient business model. This trend continued in 2018. At the start of the year, WesternGeco announced a plan to exit the marine acquisition market and, after the summer, Shearwater acquired their assets. A few months later, CGG communicated their plan of becoming asset light. Following these strategic moves, PGS is the only fully integrated offshore seismic company, which I believe will be a competitive advantage for us in an improving market.

We experienced a fundamental market improvement for MultiClient in 2018, combined with encouraging developments in the contract market. However, the contract market was still challenging and the acceleration that we have experienced in earlier cycles is yet to materialize. We have a close dialog with clients and their feedback suggests that there are reasons to believe 2019 will be a better year than 2018. This is supported by improving cash flow among our customers. We also believe their looming challenge of maintaining and building reserves to meet energy demand will benefit the marine seismic market going forward.

During 2018, we revised our strategy. In the coming years, we will focus on debt reduction and improving profitability and efficiency in everything we do. We will continue to develop our MultiClient business and build a leadership position in the 4D market. By further developing our integrated position, it will be our target to image all the data we acquire, and to leverage our fleet productivity and technology. We will continue to innovate and R&D will be focused on developing differentiating technologies. We will aggressively capitalize on digitalization to achieve these goals. I look forward to delivering on our strategy and I believe this is the right way for PGS to create shareholder value.

PGS will aggressively capitalize on digitalization to achieve its strategy:
Technology  |  Cloud Computing  |  Data Protection  |  Automation  |  Turnaround Time