We addressed the situation swiftly by reducing cost and capital expenditures considerably and engaging with our lenders to achieve extension of debt maturities. During 2020 we have proven the value of our integrated service offering. We managed to deliver imaging and acquisition projects according to plan, despite significant logistical challenges caused by the Covid-19 pandemic and we reached important milestones in our digital transformation process. Our overall achievements in 2020 make us well positioned to take advantage of what we expect will be a recovering seismic market in 2021.

In the wake of the 2019 market recovery, we expected the positive momentum to continue in 2020. The trend came to an abrupt halt in the first quarter when the Covid-19 pandemic hit the world with full force and disrupted the oil market. Energy companies reduced their investment plans by almost 30% overnight, and the time we had to set a new course was approximately the duration of our order book.

We immediately reviewed alternatives to preserve liquidity and it was evident that we had to adjust our business activities and cost levels. Our operating fleet was reduced by close to 40% by stacking Sanco Swift, PGS Apollo and Ramform Vanguard. In addition, we reduced staff by approximately 40% through a comprehensive reorganization which was completed in the third quarter. With numerous other cost-reducing initiatives, we were able to reduce our gross cash cost from the initial 2020 plan of approximately $600 million to an annual run-rate below $400 million as we moved into 2021.

Cost reductions were necessary to compensate for reduced revenues and to avoid becoming structurally cash flow negative before debt repayment. This also enabled us to approach our lenders on postponement of debt maturities and amortizations. We started engaging with our lenders during the second quarter with the aim of finding a solution which was acceptable to all main stakeholders. It became a complex process, but we were in the end able to get an agreement that I believe is good for PGS, and that had overwhelming lender support, deferring debt maturities and amortizations to September 2022 and beyond. The process had to be finalized by use of a UK Scheme of Arrangement, as one lender did not consent to the agreement.

As the energy transition evolves, we believe that the focus of our customers will continue to gradually shift from frontier and large-scale exploration towards more targeted exploration in proven hydrocarbon basins. We believe there will be an increased focus on nearfield exploration and 4D monitoring of producing fields to increase oil and gas recovery. This plays into the strengths and strategy of PGS. We are a leader in 4D monitoring based on our state-of-the-art vessel and acquisition technology. Further, we take advantage of the ability to combine MultiClient and contract acquisition to the benefit of our customers and PGS. We aim to expand on our leadership in 4D production seismic, improve our joint contract and MultiClient approach, grow the MultiClient business in proven hydrocarbon areas with high pre-funding, optimize operating cost and efficiency, and focus our research and development efforts for imaging and acquisition technologies by capitalizing on the digital transformation process.

Our success in the Mediterranean this year illustrates the strength of our joint contract and MultiClient approach. We secured 15 vessel months of Ramform Titan-class acquisition work over seven newly awarded blocks manifesting our leading position in the area. The overall program comprised several MultiClient programs and one contract job, and we will have two vessels offshore Egypt until Q2 2021.

Despite complexities such as travel restrictions and quarantine requirements caused by the Covid-19 pandemic, we managed to operate our vessels according to plan. Our offshore crews have put in an extraordinary effort to make this possible, including longer and less predictable rotations. All our office employees have adapted to a large re-organization and the new norm of home office in an admirable way. We have managed vessel logistics, delivered imaging projects, secured MultiClient data library sales, secured contracts, developed new MultiClient projects, progressed on our digital transformation, and support functions have worked to our usual high standards. I am impressed by the PGS organization and how it has delivered in a very different and very challenging year.

Our digital transformation process gained real momentum during 2020. Together with TGS and CGG we are developing a Cloud based MultiClient sales platform to make data more easily available for clients, and we plan for commercial launch in 2021. By contextualizing and utilizing vessel- and seismic equipment data, we have reduced vessel operating cost, improved vessel efficiency and speed, developed systems for predictive maintenance and implemented systems to improve HSEQ performance. We have successfully run several applications and workflows on our first commercial imaging project in the Cloud. With artificial intelligence, machine learning and analytics we have commercialized a workflow enabling accelerated turnaround and we have done proof of concept to identify processing patterns in historical data sets to minimize testing and accelerate data delivery.

The oil price has recovered from the low levels experienced in March and April 2020 and is now, in Q1 2021, back at levels where our customers, on average, generate positive cash flow after cost, capital expenditures and dividend. Despite the impacts of the Covid-19 crisis, energy consumption is expected to continue to increase longer term with oil and gas being important parts of the energy mix as the global energy transition evolves. Offshore reserves will be vital for future supply and support demand for marine seismic services. Even in a scenario with flat oil and gas demand, depletion of existing reserves will require exploration to maintain the current level of production. It will take time before seismic demand is back to pre-Covid 19 levels. However, the combined effects of a higher oil price, positive cash flow among our clients, bids withdrawn from the market last year reemerging this year and an improving industry order book, support our view that 2021 should be slightly better for our industry than 2020. With the measures implemented during 2020, PGS is well positioned to generate positive cash flow and benefit from a market recovery.

Rune Olav Pedersen
President and CEO
February 23, 2021