Petroleum Geo-Services Announces 1999 Results


Petroleum Geo-Services Announces 1999 Results

Financial Highlights
 Fourth quarter and year-to-date revenue increase by 4% and 3%, respectively, over prior year periods
 Fourth quarter and year-to-date diluted earnings per share (before unusual items and accounting change) are $0.06 and $0.41, respectively
 Production services revenue totals $102.5 million, 46% of total revenue, for the 1999 fourth quarter
 Fourth quarter multi-client sales exceed fourth quarter multi-client cash investments

Operating Highlights
 Four Ramforms are now deployed on projects in Brazil
 Remainder of seismic fleet is now booked with solid backlog well into summer 2000
 Ramform Banff encounters difficulties in the fourth quarter; however, production continues to improve, with current production of approximately 45,000 bbls per day
 Petrojarl I is awarded an early well test contract in the North Sea
 PGS is awarded one of the largest land contracts in the industry in the Middle East
 PGS has been awarded several smaller multi-component surveys and remains in the running for one of the largest contracts of this type

Houston, Texas; Oslo, Norway; February 16, 2000: — Petroleum Geo-Services ASA (NYSE: PGO; OSE: PGS) reported lower quarter-to-quarter earnings as expected, reflecting production difficulties encountered on the Ramform Banff and lower activity in the geophysical market as compared to the conditions in the fourth quarter of 1998. Although oil prices almost tripled during 1999, the geophysical market has been slow to recover due to recent mergers within the oil and gas industry and continuing uncertainty regarding the long-term stability of oil and gas prices. These factors worked to depress exploration and development spending throughout 1999.
The Company's 1999 fourth quarter revenue of $220.7 million reflects a 4% increase over the same period of the previous year. The increase in revenue resulted from the impact of the Ramform Banff and the Petrojarl Varg (which were not a part of 1998 results), partially offset by lower geophysical services revenue for the reasons noted above. Fourth quarter operating profit was $29.0 million, representing a 13% operating profit margin. For the year, revenue increased to $788.2 million, up 3% compared to 1998. The increase in revenue reflected growth in the Company’s production services business, with the acquisition of the Petrojarl Varg and the commencement of operations of the Ramform Banff during 1999, and a full year of operations from the Atlantic Power Group and the FPSO operations acquired from Awilco ASA (both acquired during 1998). The growth in production services revenue was partially offset by lower geophysical services revenue. Year-to-date operating profit (before unusual items) was $128.9 million, representing a 16% operating profit margin.
The Company’s net income for the 1999 fourth quarter was $6.2 million — 78% lower than net income (before unusual items) for the fourth quarter of 1998. Diluted earnings per share (before unusual items) were $0.06, compared to $0.30 for the same period of 1998 — an 80% decrease. Net income for 1999 (before unusual items and accounting change) was $39.1 million — 65% lower than net income for the comparable 1998 period. Diluted earnings per share for 1999 (before unusual items and accounting change) were $0.41, compared to $1.32 for the same period of 1998 — a 69% decrease.
Reidar Michaelsen, Chairman of the Board and Chief Executive Officer, stated, “As we previously announced in early January, due to unexpected difficulties on the Ramform Banff FPSO and the poor market conditions in the geophysical industry, we were unable to achieve our targeted revenue and profit during the fourth quarter of 1999. We have now solved many of the issues that caused the problems in the fourth quarter and expect the Ramform Banff FPSO to operate on a much more consistent basis going forward. In addition, the backlog in place for the geophysical business is quite a bit stronger than at this point in 1999 and continues to improve.”

Michaelsen went on to say, “With respect to multi-client data, we are very determined to generate positive cash flow from our library in 2000 and beyond. We have so far succeeded in reducing our quarterly library cash investment from $115 million in the fourth quarter of 1998 to $70 million in the most recent quarter. However, the volume of high quality 3D seismic data being added to the library has not declined commensurate with the significant decline in cash investment as a result of our more efficient seismic fleet, now positioned with six high capacity Ramform vessels.”

Review of Geophysical Services Operations

For the quarter and year ended December 31, 1999, the Company achieved multi-client sales of $72.0 million and $242.2 million, respectively. The average amortization rate applied to these sales during each period was 58% and 57%, respectively. During the third quarter of 1999, one of the Company’s equity investments successfully completed an initial public offering. As of February 14, 2000, the Company’s equity investment was valued at $93.6 million. The majority of this investment was acquired in exchange for a license in the Company’s seismic data library. Consequently, this value was created largely from the Company’s seismic data library. The Company has other investments of a similar nature under development.

Overall, at December 31, 1999, the Company had $332 million of in-process seismic data and $484 million of finished seismic data available for sale. All of the seismic data is 3D or multi-component geophysical information and approximately 90% of this data has been acquired in the last 24 months. Of the finished seismic data available for sale, approximately 85% was completed during the past 24 months. Most of the Company's seismic data is located in deepwater areas in the Gulf of Mexico, West Africa, Brazil, Norway, West of Shetlands, Egypt and Australia. In addition, the Company maintains a reasonable database in the gas prone areas on the continental shelves in the Gulf of Mexico, the UK sector of the North Sea, Norway, Indonesia and certain areas in the Middle East. The Company believes its current data library is one of the largest and newest 3D seismic databases available in the industry.

The weaker than expected multi-client and seismic contract revenues and seismic contract margins experienced by the Company during the fourth quarter and 1999 reflect the extremely poor market conditions related to: 1) a significant reduction in exploration and production spending due to hydrocarbon prices and extensive consolidation activities within the oil and gas industry; 2) a depressed market for ancillary seismic businesses such as data processing, data management, software sales and reservoir consulting, and 3) excess marine seismic industry capacity that was not removed from the market in a timely manner.

As of February 2000, the Company has a solid backlog for its seismic acquisition capacity. The marine acquisition fleet has now been reduced to six high capacity Ramform vessels, two modern six streamer vessels and two multi-component crews, one of which is capable of operating in water depths up to 2,000 meters. With this reduced, but very efficient, fleet of seismic vessels, the Company anticipates that it will be able to add high quality seismic data to its seismic data library at a lower cost than that incurred in prior years and realize improved margins on its seismic contracts as prices improve. This should allow the Company to maintain positive cash flow from its seismic data library going forward. Management is very focused on achieving positive cash flow from the Company’s seismic library and will continue to take the necessary actions to achieve this goal.

Review of Production Services Operations

For the quarter and year ended December 31, 1999, the Company achieved production services revenue of $102.5 million and $368.3 million, respectively. The amount of production services revenue generated during the fourth quarter of 1999 was adversely affected by difficulties associated with the Ramform Banff FPSO. Lower than expected production on the Banff facility was due to operational difficulties associated with the power generation facilities and the remote oil offloading system, and unusually severe weather conditions during late November and December that caused several disruptions in the North Sea and delayed the recovery of the Banff remote oil offloading system. The Company believes that it has solved the power generation issues and developed a solution to the offloading problems that should allow for more consistent production during difficult weather periods. The Company also believes that with these solutions in place, weather downtime should be limited to less than 6% per year. In addition, the Company believes that a successful resolution to each of these issues should strengthen its relationship with Conoco and Ranger Oil and allow for a smoother tie-back of the Kyle field production.

During the year 2000, the Company expects to receive an additional seven months of revenue, cash flow and profit from the Petrojarl Varg, which was acquired in July 1999. In addition, a full year of production on Banff should contribute to the growth of the production services business in 2000. The Petrojarl Foinaven is expected to remain on the BP Amoco Foinaven field for several additional years and we believe it is one of the best performing FPSO's in the industry. The Petrojarl I was awarded a new contract to perform an early well test on the Kyle field that will run from May 2000 to October 2000. After a standard five-year inspection and a minor upgrade, this vessel is expected to be certified for an additional fifteen years of operation in the North Sea. Following the certification and upgrade, the Petrojarl I is expected to work on a multi-year contract, several of which are currently under discussion.

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During September 1999, the Company commenced reporting to the U.S. Securities and Exchange Commission utilizing the EDGAR Database reporting system. Consequently, financial information, including Management Discussion and Analysis of Operating Results and Financial Condition will be available online through this system on the applicable reporting requirement dates.
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Petroleum Geo-Services is a technologically focused oilfield service company principally involved in two businesses — geophysical services and production services. PGS acquires, processes, manages and markets 3D, 4D and 4C marine seismic data. Such data is used by oil and gas companies in the exploration for new reserves, the development of existing reservoirs and the management of producing oil and gas fields. In its production services business, PGS owns four floating production, storage and offloading systems (FPSOs) and operates numerous offshore production facilities for oil and gas companies. FPSOs permit oil and gas companies to produce oil and gas from offshore oil and gas fields more cost-effectively. PGS also provides data management solutions, 4D reservoir monitoring and characterization studies, and other specialized geophysical services. PGS operates on a worldwide basis with headquarters in Houston, Texas, and Oslo, Norway.
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The information included herein contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These statements are based on certain assumptions and analyses made by the Company in light of its experience and its perception of historical and future trends, on general economic and business conditions and on numerous other factors, including expected future developments, many of which are beyond the control of the Company. Such forward-looking statements are also subject to certain risks and uncertainties as disclosed by the Company in its filings with the Securities and Exchange Commission. As a result of these factors, the Company’s actual results may differ materially from those indicated in, or implied by, such forward-looking statements.

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