Dear Shareholder

The seismic market declined in 2021 compared to 2020, impacted by the ongoing energy transition leading to changing behaviors among energy companies and negative effects from a persistent pandemic. PGS has competences and assets that may be of significant value in the energy transition, in which we aim to play a role. We therefore established a New Energy business unit with clear mandates to pursue technologies and opportunities in this segment. Our fully integrated service offering enabled us to improve our competitive position. We took advantage of a recovering contract market and enhanced our MultiClient performance relative to our peers. Overall, we are progressing as the leading geophysical company, while assessing and developing new business opportunities. However, the declining seismic market in 2021 has increased the risk that we will not be able to generate sufficient cash flow to repay our 2022 debt maturities as they fall due, and we will have to address this challenge during 2022. I still believe our achievements in 2021 have positioned us well for opportunities in a recovering seismic market going forward.

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Total industry MultiClient revenues and investments declined in 2021, compared to 2020 and explains the weaker overall performance for our industry. However, we managed to secure acceptable pre-funding on our new MultiClient acquisition projects, and generally experienced higher interest for our geographically diversified MultiClient data library than peers. Until the third quarter we had the highest MultiClient revenues in the industry for five consecutive quarters. We benefitted from the normal seasonal MultiClient late sales upswing in the fourth quarter, but volumes disappointed compared to the opportunity basket we worked on.

A priority shift among energy companies towards more near-field exploration and 4D reservoir optimization positively impacted demand for proprietary contract work. In 2021, this came at the expense of traditional exploration activities, and we experienced a shift of capacity allocation from MultiClient to significantly more contract work. Higher demand for contract work enabled us to increase prices significantly in the second half of the year, but pricing is still at a relatively low level. More near-field exploration and 4D reservoir optimization strengthens our competitive position and we are increasingly taking advantage of our high-capacity Ramform acquisition vessels and the proprietary GeoStreamer technology. The contract market recovery in 2021 is unusual considering the more muted MultiClient market. Historically, market recoveries have started with improving MultiClient sales before contract activity and rates increase. With the generally projected increase in exploration and production spending for 2022 and feedback form our clients, we expect a stronger MultiClient market going forward.

There are two mega-trends which impacted us in 2021 and will continue to do so in the years to come, the energy transition and digitalization. We have adjusted our strategy to make sure our core geophysical business is positioned for these mega-trends. We intend to maintain and develop our position as the leading provider of near-field exploration and production (4D) seismic. Further we are developing hybrid towed streamer and OBN solutions to include it as a part of PGS core offering. This summer we completed a combined towed streamer and node seismic survey for Lundin Energy Norway in the Barents Sea with great success, including several acquisitions records. To improve our capabilities beyond the learnings from the Lundin-survey we entered a strategic collaboration with Magseis Fairfield to position us for a growing hybrid towed streamer and OBN seismic market.

Our strategy was further adjusted to include New Energy, which defines PGS’ position in the energy transition markets. We used significant time to assess where we can use our expertise and assets to offer value to clients. Carbon storage (“CS”), offshore wind and marine minerals are arenas where we expect to contribute and build business. We have already made several MultiClient data sales for CS purposes, and we are awarded two acquisition contracts for execution in 2022 for development of the Endurance and the Northern Lights CCS projects. We have an ambition of developing New Energy into a significant business unit for PGS.

We are making good progress with our digital transformation process. It is embedded as a core part of our adjusted strategy, and we intend to increase speed and penetration. During 2021 we reached an important milestone when we entered a multi-year Data Management as a Service (“DMaaS”) agreement with a major customer. Under the agreement PGS will provide a Cloud based digital data asset management solution allowing the client to store, manage and access subsurface data they have licensed from PGS. Further we continue to develop, enhance, and implement results from our core digitalization projects. PGS Solis is our Cloud based MultiClient data sales platform enabling easier and quicker access to MultiClient data for our customers. Our scalable Cloud enabled imaging platform, PGS Eos, is advancing and we are already using the cloud for key processing sequences on significant surveys. We have also established PGS Digital Factory as a companywide digitalization initiative to execute on our strategy more efficiently.

Despite all the logistical complexities the pandemic has thrown at us, we have managed to operate our vessels without material disruptions. Once again, our offshore crews have put in an extraordinary effort to make this possible. Our office employees have worked from home for extensive periods of the year and managed their tasks in an admirable way. I am impressed by the PGS organization and how it has delivered in another different and challenging year.

We continue to focus on costs and are constantly looking for new areas of cost improvements. This work continued through 2021 despite of the upward cost pressure created by the global pandemic. Our 2021 financial performance did not meet our internal forecast, mainly due to weak vessel utilization and disappointing MultiClient late sales in the fourth quarter. As a result, there is a risk that we will not be able to generate sufficient cash flow to repay our 2022 debt maturities and at the same time remain with an adequate liquidity reserve. We are working on how to address the possible liquidity shortfall. See “Financing status” section of the Board of Directors report for more details.

During 2021 the oil price has increased more than 50% and it is evident that hydrocarbons will be an important part of the energy mix as the global energy transition evolves. Offshore reserves will be vital for future supply and support demand for our marine seismic services. Listening to what our clients say regarding capital expenditure plans, including seismic spending, they expect to increase spending in 2022. Combining higher investments with our favorable position in the near-field exploration and 4D reservoir markets and the progress we are making within New Energy and digitalization to become an even better geophysical company, makes me confident that 2022 will be better than 2021.

Russia’s invasion of Ukraine in late February is deeply concerning to us, with severe humanitarian consequences, and significant impact to the world’s political environment and security situation. It is impossible to estimate what impact this could have on our markets and activities going forward.

Rune Olav Pedersen
President and CEO