PGS Announces Unaudited First Quarter 2004 Results Under Norwegian GAAP

MAY 13, 2004: OSLO, NORWAY - Petroleum Geo-Services ASA ("PGS" or the "Company") (OSE: PGS; OTC: PGEOY) announced today its unaudited first quarter 2004 results under Norwegian generally accepted accounting principles ("Norwegian GAAP").   

 

This information, including 2003 financial information, is unaudited and subject to adjustment following the completion of the Norwegian GAAP audited financial statements for 2003 and the U.S. GAAP audited financial statements for 2003 and 2002 and the re-audit under U.S. GAAP for 2001. In addition, material weaknesses in the Company's system of internal controls over financial reporting that were previously disclosed have not been eliminated. Based on progress to date to complete the Norwegian GAAP audited financial statements for 2003, the Company is aware that adjustments will be required to the preliminary, unaudited 2003 financial statements as released on March 16, 2004, as explained in more detail below. Accordingly, the information in this press release should be read in conjunction with, and is subject to, the significant qualifications discussed in more detail below.

 

 

 

	Quarter ended March 31,		Year ended
(In millions of dollars)	2004 Unaudited	2003 Unaudited	December 31, 2003 Unaudited
Revenues	$ 250.7	$ 297.4	$ 1,111.5
Operating profit (loss)	39.1	(179.9)	(629.6)
Net income (loss)	(1.1)	(237.9)	(814.1)
Adjusted EBITDA (A)	98.0	136.2	477.7
Cash investment in multi-client (B)	(15.2)	(39.0)	(93.0)
Capital expenditures (C)	(23.6)	(10.2)	(57.4)
Cash Flow Post Investment (Defined as A+B+C)	$   59.2	$   87.0	$   327.2

 

 

 

We expect 2004 cash flow to be in line with business plan as previously announced - but with uncertainty

Previously disclosed 2004 business plan is below 2003 business plan and actual 2003 performance

2003 revenues where unusually front end loaded

Q1 revenues of $250.7 million, down $46.7 million compared to Q1 2003

Q1 Adjusted EBITDA $98.0 million, down $38.2 million from Q1 2003

Decline in revenues and Adjusted EBITDA largely driven by Marine Geophysical where higher contract revenues were offset by:

o  Lower multi-client late sales; Q1 2003 included a $18.1 million sale of Brunei data which was reversed in Q2 2003

o  Shut down of the OBS 2C crew in late 2003 (contract revenues of $11.9 million included in Q1 2003 numbers)

o  Lower multi-client investments which reduce Adjusted EBITDA as less costs are capitalized

Cash balances increased $6 million in Q1 2004

Q1 Cash Flow Post Investment, as defined, of  $59.2 million, down $27.8 million (32%) from Q1 2003

Q1 Capital expenditures $23.6 million, up $13.4 million from Q1 2003 due to Pertra drilling program and Marine Geophysical streamer replacement program

Marine Geophysical significantly increased the portion of streamer capacity used in the contract market, but with increased competition

Multi-client sales ahead of plan in all regions but Brazil where 6th licensing round delays led to lower than expected sales 

Onshore continued positive development in operating performance despite lower project activity

Production had stable performance for all vessels and reported Adjusted EBITDA in line with Q1 2003

Pertra production slightly higher than Q1 2003 at continued high oil prices 

 

 

Arranged a $110 million working capital facility in March 2004

Distributed second and final installment of excess cash of $22.7 million to former bondholders and bank debt holders in May 2004

Likely delay in completion of U.S. GAAP audits and re-audit beyond 30 June 2004

Intend to seek waivers for requirements to report U.S. GAAP financial statements under certain debt and lease agreements

 

 

 

The Company, which emerged from Chapter 11 bankruptcy proceedings in early November 2003, is continuing its efforts to have an audit of the Company's 2002 financial statements and a re-audit of the Company's 2001 financial statements completed under U.S. GAAP. The Company is also continuing its efforts to prepare audited financial statements for 2003 under both Norwegian GAAP and U.S. GAAP and to address material weaknesses in the Company's system of internal controls over financial reporting that were disclosed in November 2003. At this time, these material weaknesses have not been eliminated.

 

The Company does not expect to release operating results under U.S. GAAP until these audits and re-audit are completed. As previously disclosed, there can be no assurance as to whether or when these audits and re-audit can be completed. However, the Company believes it is unlikely that such audits and re-audit will be completed by June 30, 2004. The Company will announce its target date at the time it distributes its Norwegian GAAP financial statements for 2003 to the shareholders in June.

 

As previously disclosed, if and when completed, the audits and re-audit could result in restatements of the Company's previously filed U.S. GAAP audited financial statements and restatements or other adjustments to its 2002 unaudited annual financial statements and 2002 and 2003 U.S. GAAP unaudited interim financial statements. Those restatements and adjustments could be material, although they are expected to be of a non-cash nature.

 

Furthermore, although the audits and re-audit are being conducted under U.S. GAAP, there can be no assurance that the findings from these audits and re-audit will not have an impact on Norwegian GAAP 2002 and 2003 and first quarter 2004 historical financial statements. Based on the progress to date to complete the audited 2003 financial statements under Norwegian GAAP, the Company is aware that a number of adjustments will be required to the preliminary, unaudited 2003 financial statements as released on March 16, 2004. The Company believes that adjustments currently known to be required with respect to the unaudited, preliminary Norwegian GAAP 2003 financial statements would not materially impact net income or total assets reported. Since the 2003 audit is not complete, however, additional adjustments could be proposed and such adjustments could be material. Furthermore, the Company believes that it is unlikely that its auditors will be able to issue an unqualified audit opinion on the 2003 financial statements under Norwegian GAAP until the audits and re-audit discussed above are completed.

 

Also, as earlier disclosed, until the audits and re-audit of financial statements under U.S. GAAP are completed, the Company will be unable to file with the Securities and Exchange Commission an Annual Report on Form 20-F that contains audited financial statements for three full fiscal years.  For so long as this condition exists, the Company will be precluded from, among other things, listing its American Depositary Shares ("ADSs") on a U.S. national securities exchange or on the NASDAQ Stock Market.  A delay in listing of the Company's ADSs in the U.S. may have a negative impact on their liquidity.

 

Further, certain of the Company's loan and lease agreements and senior note indenture contain requirements to provide audited U.S. GAAP financial statements by June 30 of each year and to provide unaudited U.S. GAAP quarterly financial statements within a specified period (typically 60 days) after the end of each of the first three quarters.  As described above, it is unlikely that the Company will complete by the end of May unaudited U.S. GAAP financial statements for the first quarter of 2004 or by the end of June audited U.S. GAAP financial statements for 2003. As a result, the Company intends to seek appropriate waivers and amendments of such reporting requirements.  However, there can be no assurance that such waivers will be obtained.  Classification of debt in the accompanying unaudited, preliminary consolidated balance sheets as of December 31, 2003 and March 31, 2004 has been made assuming that either the audited U.S. GAAP financial statements will be timely completed and delivered or that the necessary waivers and amendments will be obtained. If PGS is unable to obtain waivers from contractual commitments to make available U.S. GAAP financial statements, PGS could become in default under various debt and lease agreements, which eventually could lead to action by creditors and other parties seeking acceleration of repayment of various obligations.  If such a default were to occur, the Company might not be in a position to pay the defaulted obligations.