PGS today provided the following update ahead of its release of Q1 interim financial statements scheduled for 4 May 2011:
Q1 Preview
Following a record strong MultiClient activity in Q4 2010, PGS has seen reduced data licensing activity and seasonally lower prefunding level in Q1 2011, with MultiClient revenues ending at approximately USD 52 million. Q1 has also been impacted by yard stays, increasing fuel costs, a weakening US dollar and some effects from the unrest in Egypt and Libya.
PGS expects to report total revenues of approximately USD 240 million for Q1 2011, a corresponding EBITDA of approximately USD 70 million and approximately a break-even EBIT, based on the revised accounting policy described below.
Change of accounting policy
PGS has decided to change its accounting policy for classing and periodic maintenance of vessels with effect 1 January 2011. The change is made to better reflect the economic reality, reduce volatility and align the accounting to industry practice and practice among vessel owning companies in general. Following this change, PGS will capitalize cost relating to scheduled classing and periodic maintenance, which typically is done in 5-year intervals, and depreciate the cost over the subsequent 5-year period. This change in accounting is expected to result in a USD 20-30 million increase of both EBITDA and CAPEX for the full-year 2011. The change will also impact depreciation expense, with an estimated increase of approximately USD 15 million for the full year 2011, including the depreciation effect of restating yard cost in previous years.
Full year 2011 guidance
Oil price and fuel prices have increased dramatically through first quarter 2011. While an increased oil price is positive for seismic demand, it will, if continued, together with a weakening of the US Dollar cause an industry wide cost increase. Should the current oil price level continue throughout the remainder of the year, PGS' total fuel cost is estimated to increase by approximately USD 35 million compared to the price level in Q4 2010, forming the basis for PGS' initial financial guidance for 2011. Fuel prices have increased approximately 50 % since Q4 2010 and as disclosed at the time the fuel price sensitivity was approximately USD 8.5 million per year for every 10% change in fuel prices (from Q4 2010 levels).
PGS has successfully reduced fuel price exposure on contracts extending more than 6-8 months into the future. If the higher fuel cost levels persist, PGS expects pricing dynamics in the seismic market to gradually adjust accordingly, however profitability of current jobs of a shorter nature will be negatively impacted.
The significance of recent changes in financial and crude markets causes increased sensitivities to PGS' full year EBITDA. PGS' view of the basic market conditions for seismic services is unchanged.
PGS' expectation for the full year EBITDA is approximately USD 500 mill based on current costs and market prices. This EBITDA number is adjusted for increases in costs driven by currency fluctuations and fuel escalation as well as the aforementioned change in accounting policy.
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PGS is still in the process of completing its financial reporting procedures for the first quarter 2011 and the amounts ultimately reported may differ from the estimated amounts as a result of such procedures.
The information included herein contains certain forward-looking statements that address activities, events or developments that the Company expects, projects, believes or anticipates will or may occur in the future. These statements are based on various assumptions made by the Company, which are beyond its control and are subject to certain additional risks and uncertainties. The Company is subject to a large number of risk factors including but not limited to the demand for seismic services, the demand for data from our MultiClient data library, the attractiveness of our technology, unpredictable changes in governmental regulations affecting our markets and extreme weather conditions. For a further description of other relevant risk factors we refer to our Annual Report for 2010. As a result of these and other risk factors, actual events and our actual results may differ materially from those indicated in or implied by such forward-looking statements. The reservation is also made that inaccuracies or mistakes may occur in the information given above about current status of the Company or its business. Any reliance on the information above is at the risk of the reader, and PGS disclaims any and all liability in this respect.
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Petroleum Geo-Services is a focused geophysical company providing a broad range of seismic and reservoir services, including acquisition, processing, interpretation, and field evaluation. The company also possesses the world's most extensive MultiClient data library. PGS operates on a worldwide basis with headquarters at Lysaker, Norway.
For more information on Petroleum Geo-Services visit www.pgs.com.
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