Oslo-listed geophysical survey players PGS, TGS and EMGS are all slashing costs further after suffering losses in the second quarter on a market slump due to industry cutbacks on exploration amid the Covid-19 pandemic and lower oil prices.

PGS was hit by the biggest loss with a $111.4 million deficit in the latest quarter, widening a year-earlier loss of $48.9 million, as revenue was slashed to $90.3 million from $192.4 million in the same period of 2019.

The company’s bottom line was also heavily impacted by a further impairment of $27 million as it has recorded a total write-down of $78.4 million on a pair of cold-stacked vessels, PGS Apollo and Sanco Swift, in the first half of this year with another vessel, Ramform Vanguard, now also laid up.

Consequently, its quarterly operating loss was substantially wider at $82.2 million, versus $7.3 million a year ago.

PGS has now reduced vessel capacity from eight to five units as part of a rationalisation effort in line with reduced market demand and chief executive Rune Olav Pedersen said “further capacity reductions will be evaluated”.

'Widespread disruptions'

“The Covid-19 pandemic has caused widespread disruptions in the oil market and a significant reduction in energy companies' 2020 budgets,” he said.

“This has led to reduced demand for seismic data and deferral of seismic projects, requiring a rapid response from PGS to manage vessel supply and costs.”

The company has seen a significant drop in its orderbook that currently stands at $155 million, down from about $300 million a year ago.

It is now further streamlining its organisation with a 40% reduction in office staff as part of cost-cutting measures to reduce annual costs by around 33% to $400 million, while also slashing capital expenditure by 50% to about $40 million.

“Resetting our cost base and reducing capital expenditures to a minimum is necessary to preserve liquidity and navigate the current challenging market environment, both operationally and financially,” Pedersen said.

PGS is also in talks with banks and other lenders to defer debt obligations on a revolving credit facility, including an extension of a $135 million repayment due in September, as well as amendments of loan covenants.

However, Pedersen said the reduction in seismic activity this year is mainly due to oil companies’ efforts to protect cash flow during “extreme disruption” in the oil market and that projects have been deferred rather than cancelled, adding that “their exploration models are generally intact”.

Improved 2021 prospects

Although industry spending cuts have been not affected by the recent oil price rebound, the company expects improved seismic activity levels next year if the oil market recovery continues and that, longer term, exploration for oil and gas will be necessary to meet energy demand.

TGS, meanwhile, slumped to a quarterly net loss of $73.6 million, reversing a year-earlier profit of $26.2 million, as revenue dropped 55% year on year to $95.8 million while it also recorded an operating loss of $83.6 million versus a profit of $48 million in the same period of 2019.

The company’s chief executive Kristian Johansen said it is facing “unprecedented weak market conditions” and significantly reduced its cost level during the last quarter.

Despite lower costs, TGS took a $30 million impairment hit on its multi-client library that negatively impacted its bottom line, while also recording non-recurring costs of $16.8 million on a restructuring exercise.

However, the contractor, which has an asset-light business model with no owned vessels, still boosted cash flow from operating activities by 64% to $98.1 million in the last quarter from $59.7 million a year ago.

Work drought

It was a similar tale for Electromagnetic Geoservices (EMGS), which reported a wider second-quarter net loss of $6.6 million, compared with $2 million a year ago, as revenue was halved to $7.5 million from $14.5 million in the same period of 2019.

The contractor now has redelivered formerly chartered vessel Petrel Explorer to owner SeaBird Exploration after it completed a survey at the Martin Linge field off Norway to leave it with only one unit, Atlantic Guardian, that is now being cold-stacked as work has dried up.

EMGS said it had now renegotiated its charter agreement with the owner of the latter vessel to gain a lower cold-stacking rate for up to a 12-month period, with the firm charter period also extended by a year to October 2022.

The company is now “closing or hibernating” all offices outside of Norway in Kuala Lumpur, Houston, Rio de Janeiro, Mexico and Mumbai while reducing its full-time staff to only 20 employees from 125 at the start of this year as part of an effort to cut costs more than fivefold to only $3 million by year-end.

Finance

Geophysical trio batten down hatches amid losses