PGS is a focused marine geophysical company providing a broad range of seismic and reservoir services, including acquisition, imaging, interpretation, and field evaluation. The Company’s MultiClient data library is among the largest in the seismic industry, with modern 3D coverage in all significant offshore hydrocarbon provinces of the world. The Company operates on a worldwide basis with headquarters in Oslo, Norway.
PGS is organized in three primary business areas: Sales & Imaging, New Ventures and Operations.
- Sales & Imaging markets and sells PGS’ MultiClient library, contract acquisition services and imaging solutions to energy companies.
- New Ventures initiates and acquires new MultiClient surveys, and manages the strategic positioning and portfolio development for new MultiClient investments.
- Operations manages vessel operations and marine seismic acquisition projects, as well as research and technology developments.
2019 Business Highlights
PGS capitalized on a strong position in the 4D market and an improving contract seismic market, and realized more than a doubling of contract revenues compared to 2018. PGS’ contract prices were close to 40% higher than in 2018.
The order book nearly doubled during 2019, improving the business base going into 2020. Higher project activity enabled PGS to continue operating eight vessels during the winter season and generate additional value, compared to the seasonal reduction to six vessels in previous years when supply has been adjusted to lower winter-season demand.
Capital expenditures were kept at a low level in 2019.
Cash flow improved, and during 2019 PGS reduced net interest bearing debt by more than $100 million and increased the liquidity reserve by approximately $50 million.
PGS completed the sale of Ramform Sterling to JOGMEC, including a service agreement of up to 10 years with annual renewals. Following the sale, Ramform Vanguard was successfully re-introduced to maintain the operated 3D fleet size of eight vessels.
PGS also initiated a digital transformation process and entered into an agreement with Google Cloud as the Company’s preferred cloud provider. Short-term, PGS’ digital ambition is to image seismic data in the cloud, launch a cloud-based sales platform, improve energy efficiency and equipment maintenance. Longerterm, PGS will use machine learning and artificial intelligence for subsurface data analytics.
Early 2020, PGS completed a refinancing of its 2020 and 2021 debt maturities combined with a $95 million equity raise. The refinancing extended the maturity of the Company’s revolving credit facility and term loan to 2023 and 2024.
Strategy
PGS will further strengthen its position as the only fully integrated marine seismic acquisition and imaging company. Following decisions by WesternGeco and CGG to exit the seismic vessel acquisition market, PGS is the only seismic company offering a full range of towed streamer acquisition and imaging services through both contract and MultiClient business models. Being in full control of seismic acquisition vessels, imaging and technology positions PGS to deliver the best and most flexible solutions to clients under any contract type. Further, being a fully integrated marine seismic company positions PGS to deliver on its strategic priorities in a way that distinguishes it from the competition while providing superior value to its clients.
The prolonged industry downturn, combined with capital expenditures relating to the Ramform Titan-class new build program, has led to a higher ratio of interest-bearing debt than targeted. The Company will prioritize profitability, cash flow and debt reduction before growth and will focus on delivering a competitive return on capital employed over the cycle. Debt reduction will be given priority to ensure PGS reaches a capital structure that is sustainable through future downturns. At the same time, PGS will continue to undertake selected technology development programs to further improve client value and operational effectiveness.
PGS business strategy comprises the following key priorities:
- PGS aims to become the preferred MultiClient provider in the industry and targets a salesto- cash investment ratio of at least 2.5 times.
- PGS MultiClient business has demonstrated cyclical resilience, strong returns and positive cash flow. PGS intends to continue to invest in and profitably grow the MultiClient business.
- PGS intends to build on its leadership and increase profitability in the 4D market.
- The 4D market reached a trough in 2016 and has grown significantly in subsequent years. For the repeat surveys over producing fields, most clients focus on data quality. High capacity and productive vessels in combination with the proprietary GeoStreamer technology and integration with imaging positions PGS at the front in the 4D market.
- PGS aims to deliver the fastest turnaround time in the industry and be a fully integrated marine seismic company with both acquisition and imaging services.
- Substantially reduced time spent at each stage of the seismic value chain, from survey planning to data delivery is becoming increasingly important. Clients will benefit from a shorter lead time to access seismic data while PGS will benefit from a more efficient and cost-effective work process and a closer relationship to clients.
- PGS will leverage the strong imaging technology, including dual sensor processing products, with a target to process all of the seismic data the Company acquires.
- In the wake of the GeoStreamer, the Company has developed dual-sensor imaging technologies and received acknowledgement for unique imaging capabilities.
- PGS will continue to capitalize on its vessel assets in a cost-effective manner by developing acquisition configurations that leverage productivity, the GeoStreamer technology platform and the Company’s imaging capabilities.
- PGS Ramform fleet is unique in the industry with the lowest average age, flexible solutions for all survey designs and high productivity.
- PGS differentiates on technology and the Company will invest in imaging and acquisition technologies where sustained differentiation is or could be achieved.
PGS will leverage digitalization to deliver on the business strategy, reduce costs and increase efficiency.
Markets and Main Businesses
PGS is one of the largest participants in the global marine 3D seismic market, with a market share in 2019 of approximately 35%, measured by number of streamers operated. 2019 was the third consecutive year with growth in the seismic industry and contract services benefited the most. MultiClient typically recovers first after a downturn, and sales started to improve in 2017. The MultiClient momentum continued in the subsequent year, when PGS achieved record sales from its MultiClient library.
2019 has been the year of recovery for contract services, and PGS achieved a price increase of close to 40%, compared to the average contract price in 2018. Margins are back in positive territory, but still lower than the average profitability seen historically through the cycle.
Demand for contract work in 2019 was driven by growth in the reservoir monitoring segment. The industry has experienced a steady growth in adoption of 4D monitoring surveys over the last decade. The number of companies applying 4D to one or more of their fields have increased five-fold. PGS has a solid market share in the 4D segment as a result of the Company’s GeoStreamer offering providing superior data quality, as well as steerable streamers and sources making it possible to precisely replicate earlier 3D surveys and baseline 4D surveys.
The net 3D vessel capacity in the industry as a whole increased marginally during 2019, compared to 2018. At the same time activity has been higher and production seismic more prominent in the mix. The improving market fundamentals has improved vessel utilization, which is approaching pre downturn levels.
Higher activity and improved vessel utilization have resulted in higher prices and positively impacted order books and visibility across the industry.
Technology
PGS invests considerable resources to develop and deliver solutions for customers focusing on efficiency and best-in-class imaging quality.
GeoStreamer, the first-ever dual-sensor streamer and a proprietary PGS technology, was a game changer in streamer technology and the best proof of PGS’ technology differentiation.
GeoStreamer affects the entire E&P life cycle, reducing exploration risk, improving the delineation of reservoir details, enabling accurate reservoir characterization and better production management. The unique design of GeoStreamer has created several new paradigms for how seismic data is used by PGS’ customers. Separated Wavefield Imaging (“SWIM”) is a technology that significantly improves understanding of shallow geology and drilling hazards whilst simultaneously enabling improvements in survey efficiency - a concept previously viewed as contradictory. SWIM is an example of a unique solution made possible by GeoStreamer data.
The GeoStreamer was originally developed to improve the seismic data quality. PGS has now developed the Next Generation GeoStreamer, which will have a significantly lower manufacturing cost, extended design life and several operational benefits. This is achieved without compromising on the data quality. PGS expects to commence production of the Next Generation GeoStreamer in 2020.
PGS is also making significant R&D progress with seismic sources. The Company has the industry leading source steering technology, and through new technology and improved towing methods PGS aims to deliver improved acquisition efficiency. The improvement is achieved by wide source tow, which is made possible by the source steering technology. During 2019 PGS completed the first survey utilizing a new towing solution, GeoStreamer X, in the North Sea.
Financial Results
Following the implementation of the new accounting standard for revenues, IFRS 15, in 2018, MultiClient pre-funding revenues are no longer recognized under the previously applied percentage of completion method. Instead, all such revenues are recognized at delivery of the final processed data, which is typically significantly later than the acquisition of the seismic data.
For internal management purposes PGS continues to use the revenue recognition principles applied in previous years, which are based on percentage of completion, and uses this for purposes of Segment Reporting. See note 4 in the annual financial statements for description.
The comments below relate to both the Company’s primary financial statements with the adoption of IFRS 15 from January 1, 2018 (“As Reported”) and segment financial information “Segment” unless otherwise stated.
In 2019, as Reported revenues amounted to $930.8 million, compared to $874.3 million in 2018.
2019 Segment Revenues were $880.1 million, compared to $834.5 million in 2018, an increase of $45.6 million, or 5%. After warm-stack of two vessels in Q1 2019, PGS increased to operating all eight active 3D vessels from the beginning of Q2 and throughout the year. In 2018 two vessels were warm-stacked both in Q1 and Q4. The additional operated capacity in 2019 was primarily deployed in the contract market, which in combination with better overall vessel utilization and improving contract pricing gave a significant increase in contract revenues. This revenue increase was partially offset by a lower MultiClient pre-funding and late sales revenues.
Contract revenues ended at $318.8 million, compared to $149.5 million in 2018, an increase of $169.3 million, or 113%, primarily as a result of more capacity allocated to contract work and close to 40% higher prices, compared to the average 2018 price level. The price increase is driven by higher activity levels/better supply demand balance, as well as PGS’ strong position in the 4D market and integrated product offering.
In 2019, MultiClient pre-funding revenues, As Reported, were $307.2 million, predominantly driven by completion of surveys in North and South America. This was a decrease of $15.0 million, or 5%, compared to 2018, owing to less surveys completed and delivered to customers in the period.
Segment MultiClient pre-funding revenues in 2019 were $256.5 million, compared to $282.4 million in 2018, a decrease of $25.9 million, or 9%, as a result of less capacity allocated to MultiClient and consequently lower MultiClient cash investment. Segment MultiClient prefunding revenues for 2019 were highest in North America, Africa and Europe.
Segment MultiClient pre-funding revenues as a percentage of capitalized cash investment (excluding capitalized interest) was 105%, inside the Company’s targeted range of 80-120%, compared to 102% in 2018. Cash investment in the MultiClient library ended at $244.8 million, compared to $277.1 million in 2018, a decrease of $32.3 million, or 12%. The lower MultiClient cash investment is mainly due to less 3D vessel capacity allocated to MultiClient and a reduction of amounts reported as capitalized cash investment following the implementation of IFRS 16.
MultiClient late sales in 2019 were $273.1 million, compared to $371.9 million in 2018, a decrease of $98.8 million, or 27%. The reduction in late sales compared to the record achieved in 2018 is a result of less sales triggering events for PGS’ MultiClient data library, particularly in Q2 2019, and a lower sales related to the typical year-end MultiClient spending by clients. Late sales in 2019 were distributed across regions and strongest in Africa and Europe.
Total Segment MultiClient revenues (pre-funding and late sales combined) decreased by $124.7 million or 19%, compared to 2018 and ended at $529.6 million.
The fleet allocation ratio, active 3D vessel time for marine contract versus MultiClient data acquisition, was 50:50 in 2019, compared to 34:66 in 2018.
The Company closely monitors the development of the gross cash costs. Gross cash costs are the sum of reported net operating expenses (excluding depreciation, amortization, impairments, deferred steaming, net and other charges, net), the cash operating costs capitalized as investments in the MultiClient library, and capitalized development costs. In 2019 gross cash costs ended at $579.8 million, a decrease of $21.8 million, or 4%, compared to 2018. Implementation of IFRS 16 reduced gross cash cost by approximately $50 million for the full year, compared to 2018. This reduction was offset by operating two more 3D vessels in Q4 2019 compared to 2018, higher vessel utilization, and higher project specific and geographical area related costs.
Net operating expenses, which include cost of sales, expensed research and development costs, and selling, general and administrative costs, totaled $324.0 million in 2019, compared to $318.6 million in 2018, an increase of $5.4 million, or 2%. The increase is primarily due to less costs capitalized as MultiClient investment, partly offset by a generally lower cost level and more deferred steaming costs.
Full year 2019, gross research and development (“R&D”) costs decreased by $2.0 million, or 10%, to $17.7 million. Capitalized development costs decreased by $0.9 million, or 10%, compared to 2018, resulting in overall R&D costs in 2019 to be 10% lower than in 2018. The Company’s R&D costs are mainly incurred to support and develop core business activities of marine seismic acquisition and imaging.
In 2019, total MultiClient amortization, As Reported, was 72% of MultiClient revenues, compared to 52% in 2018. The Company recognized accelerated amortization of $213.0 million on projects completed in 2019.
The Company recorded impairments on the MultiClient library of $ 17.9 million in 2019.
Segment MultiClient Amortization for 2019 decreased by $18.2 million, or 5%, to $343.9 million, compared to 2018. Segment MultiClient amortization as a percentage of total Segment MultiClient revenues was 65% in 2019, compared to 55% for the full year 2018
2019 gross depreciation was $203.9 million, in line with gross depreciation in 2018. As a result of implementing IFRS 16, gross depreciation in 2019 increased by $41.4 million, which was almost fully offset by reduced depreciation driven by a generally lower investment level in recent years.
Operating profit As Reported in 2019 was $54.6 million, an increase of $15.2 million, or 39%, compared to $39.4 million in 2018.
Operating profit according to Segment Reporting, excluding impairment and other charges net, in 2019 was $96.4 million, an increase of $60.1 million, or 166%, compared to an operating profit of $36.3 million in 2018.
For the full year 2019, the share of results from associated companies amounted to a loss of $20.1 million, compared to a loss of $18.9 million in 2018. The loss was primarily related to exploration expense and impairments in the Azimuth Group, where PGS has an ownership of approximately 35%. PGS has a right, but no obligation to provide further funding of the Azimuth Group and has no guarantees outstanding.
Gross interest expense amounted to $63.6 million in 2019, compared to $69.1 million in 2018, a decrease of $5.5 million, or 8%, primarily as a result less interest bearing debt and lower interest rates on floating rate debt.
Other financial expense, net, of $4.6 million in 2019 is primarily related to fees on debt instruments, partially offset by interest income, compared to other financial expense, net, of $6.4 million in 2018.
Income tax expense, which consists of current and deferred tax expense, was $34.1 million in 2019, compared to $40.0 million in 2018. The 2019 current tax expense was $34.8 million, down from $40.0 million in 2018. Current tax expense primarily relates to foreign withholding tax and corporate tax on activities in South America, Africa and Middle East.
PGS is subject to taxation in many jurisdictions around the world with increasingly complex tax laws. PGS has identified issues in several jurisdictions that could eventually make the Company liable to pay taxes relating to prior years in excess of the liability recognized in financial statements. Reference is made to note 11 and 22 of this annual report for a description of significant tax contingencies.
Loss to equity holders of PGS ASA was $71.7 million in 2019, compared to a loss of $87.9 million in 2018.
Cash Flow, Financial Position and Financing
Net cash provided by operating activities totaled $474.3 million in 2019, compared to $445.9 million in 2018. The increase is driven by higher earnings as well as the effect of classifying payments on leasing obligations as financing activity in the cash flow statement (ref. IFRS 16).
Cash and cash equivalents totalled $40.6 million as of December 31, 2019, compared to $74.5 million as of December 31, 2018. The liquidity reserve, cash and cash equivalents and the undrawn part of the Revolving Credit Facility (“RCF”), was $210.6 million as of December 31, 2019, compared to $159.5 million as of December 31, 2018.
As of December 31, 2019, drawings of $180.0 million were outstanding on the RCF. The RCF in place as of December 31, 2019 matures in September 2020 and had a drawing limit of $350 million.
Restricted cash of $43 million includes $39 million held in debt service reserve and retention accounts related to the export credit financing (“ECF”) of Ramform Titan, Ramform Atlas, Ramform Tethys and Ramform Hyperion.
At December 31, 2019, the Company had approximately 55% of its debt at fixed interest rates. The weighted average cash interest costs of gross debt for the full year 2019, reflects an interest rate of approximately 5.00%, including credit margins paid on the debt.
In February 2020 PGS completed a refinancing of its 2020 and 2021 debt maturities. The Company raised a four-year term loan B (“TLB”) of $523 million and extended $215 million of its RCF by three years from its current expiry date in September 2020. The new TLB matures in March 2024 and was secured through an extension of $373 million (99%) of the earlier $377 million TLB and a $150 million upsize from existing and new TLB lenders. As part of the refinancing, the Company completed an equity private placement of approximately $95 million. The net proceeds from the $150 million incremental TLB and the new equity was primarily used to redeem the $212 million Senior notes due December 2020.
The undrawn portion of the RCF constitutes a significant portion of the Company’s liquidity reserve. The Company is in compliance with the Total Leverage Ratio (“TLR”) covenant applicable to the RCF. At December 31, 2019 the TLR was 2.28:1, well below the maximum level of 2.75:1. The Company expects to be in compliance with the TLR covenant going forward.
PGS interest-bearing debt includes the following components:
| December 31, | ||
| (In USD million) | 2019 | 2020 |
| Secured: | ||
| Term Loan B | 377.0 | 381.0 |
| Revolving Credit Facility | 180.0 | 265.0 |
| Japanese Export Credit Financing | 322.1 | 363.3 |
| Unsecured: | ||
| Senior Notes, due 2020 | 212.0 | 212.0 |
| Total | 1 091.1 | 1 227.3 |
Net interest-bearing debt (interest-bearing debt less cash and cash equivalents, restricted cash, and interest-bearing investments) was $1 007.5 million as of December 31, 2019, compared to $1 109.6 million as of December 31, 2019.
Investments
In 2019, total MultiClient cash investment, excluding capitalized interest, amounted to $244.8 million, compared to $277.1 million in 2018, a decrease of $32.3 million, or 12%. The decrease is primarily due to less 3D vessel capacity allocated to MultiClient and a reduction of amounts reported as capitalized cash investment following the implementation of IFRS 16.
Capital expenditures, whether paid or not, totaled $59.1 million in 2019, compared to $42.5 million in 2018, an increase of $16.6 million, or 39%. The increase is primarily a result of reintroduction of the Ramform Vanguard, partially offset by lower capital expenditures on imaging and seismic equipment.
Financial Market Risk
The Company is exposed to market risks such as interest rate risk, currency exchange risk, credit risk, liquidity risk and commodity price risk, as discussed below. The Company’s risk management policies are approved by the Board of Directors. The treasury function reports regularly to the Company management and any breach of limits set in the policy shall be reported to the Board of Directors.
Interest Rate Risk
PGS has a mixture of fixed and floating interest rate debt combined with financial instruments, such as interest rate swaps, to manage the impact of interest rate fluctuations.
As of December 31, 2019, the debt structure of PGS included $612.2 million of floating interest rate debt, with interest rates based on up to six month LIBOR rates, plus a margin. $125.0 million of this floating interest debt is swapped into fixed interest by use of interest rate swaps. Fixed interest rate debt amounted to $478.9 million. Taking the interest rate swaps into account, $487.1 million of the Company’s debt is exposed to floating interest rates while $603.9 million have fixed interest rates. For every (hypothetical) one percentage point increase in LIBOR, the annual net interest expense of the PGS’ net interest bearing debt, including finance leases, would increase (with some delay) by approximately $4.1 million.
Currency Exchange Risk
PGS conducts business primarily in US dollars (“$” or “USD”), but also in several other currencies, including British pounds (“GBP”), Norwegian kroner (“NOK”), Brazilian real (“BRL”), euro (“EUR”), and occasionally currencies like Egyptian Pounds (“EGP”), Nigerian Naira (“NGN”) and Japanese Yen (“JPY”). PGS is subject to foreign currency exchange rate risk on cash flows related to sales, expenses, financing, and investment transactions in currencies other than the US dollar.
PGS predominantly sells products and services in US dollars, and to a limited extent in other currencies. In addition to USD, a significant proportion of PGS’ operating expenses are incurred in NOK and GBP. Less substantial amounts are incurred in various other currencies. Thus, regarding expenses and revenues in currencies other than US dollars, such expenses will typically exceed revenues.
A stronger US dollar reduces PGS’ operating expenses as reported in US dollars. It is estimated that a 10% change of the US dollar against the two most significant non-USD currencies, NOK and GBP, would have an annual impact on gross cash cost of $12-15 million, and $5-7 million, respectively, before currency hedging.
PGS hedges parts of the foreign currency exposure related to operating income and expenses by entering into forward currency exchange contracts. While PGS enters into these contracts with the purpose of reducing the Company’s exposure to exchange rate fluctuations, the contracts are not treated as hedges unless they are specifically designated as hedges of firm commitments or certain cash flows. Consequently, these forward currency exchange contracts are recorded at estimated fair value with gains and losses included as currency exchange gain (loss) in Other financial expense in the consolidated statements of profit and loss.
As of December 31, 2019, PGS had net open forward contracts to buy/sell GBP, NOK, BRL and JPY. The total nominal amount of these contracts was $107.7 million, compared to $177.0 million as of December 31, 2018. Of the total nominal amounts of forward exchange contracts, $24.0 million was accounted for as cash flow hedges, as of December 31, 2019, compared to $102.8 million as of December 31, 2018. Outstanding contracts at year-end 2019 had a net positive fair value of $0.9 million, compared to a net negative fair value of $4.1 million at year-end 2018.
A 10% depreciation of the US dollar against all the currencies in which PGS holds derivative contracts would increase the fair value of these contracts by approximately $1.6 million. The effect on the consolidated statements of profit and loss would have been positive $4.0 million.
All interest-bearing debts are denominated in US dollars.
Credit Risk
PGS’ accounts receivable are primarily from multinational, integrated oil companies and independent oil and natural gas companies, including companies that are owned in whole or in part by governments. PGS manages the exposure to credit risk through ongoing credit evaluations of customers. Due to the nature of PGS’ customer base, a low level of losses on accounts receivable has been incurred over the years. Due to the current market circumstances, where requests for extended credit terms may be more frequent, PGS has implemented additional processes to monitor and follow up credit risk.
PGS has a structured approach to monitor the credit risk of the Company’s banking partners, including derivatives counterparties and the institutions in which cash is held on deposit.
Liquidity Risk
As of December 31, 2019, PGS had cash and cash equivalents of $40.6 million and the total liquidity reserve, including cash and cash equivalents and the undrawn part of the RCF, was $210.6 million, compared to $74.5 million and $159.5 million respectively as of December 31, 2018. At December 31, 2019 the total leverage ratio was 2.28:1, well below the maximum level of 2.75:1.
As described above, in February 2020 PGS completed a refinancing of its 2020 and 2021 debt maturities and completed an equity private placement of approximately $95 million.
Based on available liquidity resources and the structure and terms of the Company’s debt after the February 2020 refinancing, it is the Board’s opinion that PGS has adequate funding and liquidity to support the Company’s operations and investment programs.
Commodity Risk
Operation of seismic vessels requires substantial fuel purchases, thus PGS is exposed to fuel price fluctuations. Based on the Company’s fuel consumption in 2019, a 10% increase in fuel prices would increase the total annual fuel costs by approximately $8 million. The Company seeks to pass fuel price risk to customers on a majority of contract work.
Operational and Other Risks
Demand for the Company’s products and services depend on the level of spending by energy companies on hydrocarbon-resource exploration, field development, and production. Spending levels are heavily influenced by energy prices and the energy companies’ focus areas. In addition to the risk of less demand for PGS’ services or for data from the MultiClient data library, the Company is subject to a large number of other risk factors including, but not limited to increased competition, the attractiveness of technology, changes in governmental regulations affecting the markets, technical downtime, licenses and permits, and operational hazards such as weather conditions.
Contracts for services are occasionally modified by mutual consent and in certain instances may be cancelled by customers on short notice without compensation. Consequently, the order book as of any particular date may not be indicative of actual operating results for any succeeding period.
Shares, Share Capital and Dividend
As of December 31, 2019 PGS had 338 579 996 shares issued and outstanding, all of which are of the same class and carry equal voting and dividend rights. Each share has a par value of NOK 3. On February 14, 2020, 48 627 000 new shares was registered bringing the total number of issued shares up to 387 206 996, each with a nominal value of NOK 3.00. The total registered share capital was as of February 14, 2020 NOK 1 161 620 988.
PGS’ ordinary shares are listed on the Oslo Stock Exchange (ticker: PGS) and denominated in Norwegian kroner. The PGS share continues to be traded as an American Depositary Receipt (“ADR”) over the counter in the US (ticker: PGSVY). Quotes are denominated in US dollars and each ADR represents one share.
As of December 31, 2019, the Company held 1 739 treasury shares.
Due to the Company’s strategic goal of reducing debt and limitations in loan agreements a dividend will not be proposed for 2019.
Health, Safety, Environment and Quality (“HSEQ”)
Safety and reliability are at the core of PGS’ business. The Company works hard to ensure that employees return home safe and well every day.
The PGS organization (core fleet vessels and PGS offices) had the following number of health and safety incidents in 2019:
| Incident | 2019 | 2018 |
| Fatalities | 0 | 0 |
| Lost time injures | 3 | 1 |
| Restricted work day cases | 0 | 3 |
| Medical treatment cases | 2 | 2 |
| High potentials incidents | 2 | 1 |
The Company’s activity level (core fleet vessels and PGS offices) in 2019 was higher than that of 2018, with 5 783 139 man-hours in 2019, compared to 5 250 840 in 2018.
| Incident frequencies* | 2019 | 2018 |
| Lost Time Injury Frequency ("LTIF") | 0.52 | 0.19 |
| Total Recordable Case Frequency ("TRCF") | 0.86 | 1.15 |
The number of total recordable cases in relation to man hours was lower in 2019 than in 2018, however PGS experienced three lost time injuries in 2019. The Company has performed thorough investigations succeeding these incidents and followed up with actions and campaigns to prevent reoccurrence.
In 2019, PGS implemented new tools and modern systems that improve risk awareness and management. Sustaining and improving HSEQ performance and safety culture will remain a priority through 2020 and beyond.
PGS has over several years systematically worked to reduce the environmental impact of its activities. With respect to climate change, PGS is committed to reducing CO2 emissions from its vessel operations and general business activity. Over the past decade, PGS has reduced its CO2 emissions per data unit by 30% and has set a target to reach 50% by 2030. The Company has multiple ongoing activities to increase energy efficiency and the ongoing digital transformation and data analytics is a key enabler in many of these. More information regarding PGS environmental initiatives can be found in PGS Corporate Responsibility report for 2019, available on our website (follow the links: “Responsibility” – “Responsible Business”).
Organization
PGS had an average of 1 256 and 1 248 regular active employees in the years ended December 31, 2019 and 2018, respectively.
As of December 31, 2019, PGS employees represented 57 nationalities; 31% of the office based employees are women (3% of offshore employees are women). Among staff working in Norway, 34% are women. The Board of Directors has three male and two female shareholder elected directors and one male and two female employee-elected directors.
At the headquarters in Oslo, 26% of management positions are held by women, and 3% of women working for the Norwegian organization of PGS work part-time. PGS consciously strives to improve the gender diversity of staff through reporting and actively encouraging development and promotion of women to management roles. The primary development processes are the Performance Management and Potential Assessment systems.
Being a global company, PGS has long-standing practice of embracing cultural diversity, and cultural sensitivity training is offered to employees.
The average monthly salary of all active regular employees as of December 2019 was $7 942 ($6 563 for female employees and $8 324 for male employees) based on February 1, 2020 exchange rates.
Board of Directors and Corporate Governance
As of December 31, 2019, the Board of Directors has the following members: Walter Qvam (Chairperson), Anne Grethe Dalane, Trond Brandsrud, Richard Herbert, Marianne Kah, Anette Valbø, Hege Renshus and Grunde Rønholt. The latter three are employee elected Board members.
The Board has established two subcommittees: an Audit Committee, comprising Anne Grethe Dalane (Chairperson), Richard Herbert, Marianne Kah, Anette Valbø and Hege Renshus, and the Remuneration and Corporate Governance Committee, consisting of Walter Qvam (Chairperson), Trond Brandsrud and Grunde Rønholt. The committees predominantly act as preparatory bodies for the Board of Directors and assist the Directors in exercising their responsibilities.
PGS also has a Nomination Committee elected by the shareholders. As of December 31, 2019, this committee consists of Harald Norvik (Chairperson), Terje Valebjørg, Alexandra Herger and Ole Jacob Hundstad.
PGS’ corporate governance principles are adopted by the Board of Directors. The Board periodically reviews these principles. Statements of the corporate governance structure are described in more detail in the corporate governance section of this annual report. The Company’s articles of association, in addition to full versions of the rules of procedures for the Board of Directors, the Audit Committee charter, the Remuneration and Corporate Governance Committee charter, the Nomination Committee charter, and PGS’ Code of Conduct are available on the Company’s website (follow the links: “About us” – “Corporate Governance”).
Since 2004, PGS has maintained a compliance hotline operated by an external service provider in order to facilitate reporting of any concerns regarding inappropriate business conduct.
The Company encourages use of the hotline by anyone who has concerns relating to compliance with laws and regulations, breaches of the code of conduct, fair treatment, or any other matter. Concerns can also be raised directly with the General Counsel or any Board member.
Corporate responsibility reports were published in combination with annual reports for 2011, 2013, 2014, 2015, 2016, 2017 and 2018, and will be published in combination with the 2019 annual report as well. The Company has signed up to UN Global Compact and going forward, progress of corporate responsibility activities will be reported in accordance with the 10 principles of UN Global Compact and published on the Company web site.
By conducting a materiality assessment PGS has identified its priorities on sustainability, and concluded to focus on five of the United Nations United Nation’s Sustainable Development Goals (“SDGs”), which are number, 4-Quality Education, 9-Industry, Innovation and Infrastructure, 13-Climate Action, 14-Life Below Water and 16-Peace Justice and Strong Institutions. More information regarding what PGS does and how it is done can be found in PGS Corporate Responsibility report for 2019, available on our website (follow the links: “Responsibility” – “Responsible Business”).
Outlook
World GDP and demand for energy is expected to continue to grow going forward. Even though renewables are expected to be the fastest growing energy source, fossil fuels is, and will remain a significant source of global energy supplies for several decades, independent of which energy mix and scenario considered. With the added challenge of natural decline of producing oil and gas fields, significant oil and gas investments are required to meet future energy demand.
Integrated energy companies have adjusted to a lower oil price environment and they report solid results. At the current oil price level, oil companies will continue to report strong cash generation going forward.
PGS expects the solid cash flow generation among clients and increasing exploration and production spending, including offshore spending, to contribute to recovery of the marine seismic market fundamentals.
During February 2020, there has been escalating global concerns over the corona virus outbreak, with a material impact on capital markets and the oil price. As of the date of this Board of Directors’ report, while PGS has taken appropriate mitigating measures, there is a risk of negative impact on operations or demand for the Company’s services.
The Board emphasizes that valuations in the financial statements and forward looking statements contained in this report are based on various assumptions made by management, depend on factors beyond its control, and are subject to risks and uncertainties. Accordingly, actual results may differ materially.
Pursuant to section 3-3a of the Norwegian Accounting Act, the Board confirms that the 2019 financial statements have been prepared based on the assumption of a going concern and that it believes that this assumption is appropriate.
Allocation of Parent Company’s result for 2019
The financial statements of the parent company, PGS ASA, are prepared and presented in accordance with generally accepted accounting principles in Norway (“NGAAP”). PGS ASA reported a net loss of NOK 19.5 million for 2019, compared to a net loss of NOK 581.3 million in 2018. PGS ASA is a holding company with no material operating activities.
The Board proposes that the net loss for 2019 of NOK 19 500 000 is transferred from other equity. Total shareholders’ equity in PGS ASA as of December 31, 2019 was NOK 4 507 000 000 corresponding to 35% of total assets.
London, February 28, 2020
Board of Directors
PGS ASA
Walter Qvam Chairperson | Anne Grethe Dalane Vice Chairperson | Marianne Kah | Richard Herbert | Trond Brandsrud
Anette Valbø | Hege Renshus | Grunde Rønholt | Rune Olav Pedersen Chief Executive Officer