TGS ASA

OSE:TGS

Earnings Call Transcript 2021-Q3

[Kristian Kuvaas Johansen, Chief Executive Officer]

Welcome to the presentation of TGS Q3 financial results for 2021. My name is Kristian Johansen. And with me today, we have Sven Børre Larsen, our CFO, who's going to cover the financial section of the presentation.And just a reminder, for those of you who are following this session on webcast, you can post your questions during the presentation, and we will respond to that when we're finished with the presentation today.This is a very special day for us at TGS, and it's a special day because it's the first physical presentation we have in Oslo since the Q4 presentation of 2019, which we held in February 2020. Since then, a lot has changed. But at the time, we presented the best result in the history of TGS. And obviously, we're not pleased with the results of Q3 of 2021, but the fact that we are here physically means that the world is moving on. We passed definitely the worst part of COVID or the pandemic, and we are hopefully entering into a better market also for exploration spending.We've already seen some early signs of what happened when you accelerate the energy transition too quickly. The world's spare oil capacity is falling. And as a result, we see early signs of energy shortage, which means that prices go up and consumers get unhappy. So the only solution to that is to invest more in production and eventually also invest more in exploration resources. So the energy transition is on us, and we're in the middle of it, but it's going to take a long time. It's going to take decades and perhaps even generations. And in the meantime, oil and gas will play a very important role. And that's why we're still quite optimistic on the future of TGS.If we move to the forward-looking statements and the presentation of the highlights of the quarter. We had net revenues of $61 million in Q3, late sales of $33 million and prefunding of $22 million. In addition to that, we had $6 million of proprietary revenues.We still have a very strong financial position. We have net cash of $198 million, and that puts us in a great position to continue to pay a quarterly dividend of $0.14 per share, which accounts to about $16 million for the quarter. In addition to that, we've been carrying out our buyback program with $7 million.As I said in my introduction, we still see a continuing challenging market conditions, but we also see some early signs of improvement. So since the quarter closed, we've had several new contracts signed in terms of getting prefunding for new projects, and we still have a list of projects that we are pursuing now and trying to get prefunding for to get started for the 2022 season. And it definitely looks better, and we definitely have more traction with clients now than we had 3 or 6 months ago, which is a clear sign that things are getting back to normal. And again, the fact that we have a physical presentation now, the fact that last week, we had EAGE in Amsterdam, we had IAGC annual conference in Houston, we had the annual NOIA meeting in Alabama, and they were all really well attended, really means that we are going back to a more normal market. And that, again, is going to have an impact on exploration spending and eventually seismic spending.We're also progressing well on the New Energy Solutions strategy. As you all remember, we made an acquisition of a company called 4C this year. 4C is developing according to plan. And a lot of the organic initiatives we have in place are also moving forward according to plan or sometimes even faster or better than we planned for. So very excited about the development in that business unit as well. And we even said in the report today that we expect that business unit to account for about 5% to 10% of the total revenues of TGS for next year. And that obviously means that we still need to look at M&A, and M&A will be a very important part of the strategy for that business unit. But we are looking at several targets, and we think that we will be in a position to generate quite significant revenues from that business unit already in 2022.And then we're pleased to launch a platform called Versal this morning. This is a unified seismic data ecosystem. It's a digital platform where we basically include all the geophysical data from both CGG, PGS and TGS in one unified platform, meaning that we create a seamless experience for the clients who can go out and look at seismic data from these 3 companies accounting for more than 70% of all the seismic data in the world at the same time. So you can seamlessly go in and look at different databases and look at different data and then make -- which makes your purchasing decision much easier.So that, again, is just a great example of how we work together and collaborate through difficult times in the seismic industry, and you will probably see much more of that in the future. We also see that in terms of the new projects that we are pursuing. A lot of those projects are in partnership with some of our peers. So we've been talking a lot about consolidation at TGS, and you've already seen some attempts on trying to consolidate the industry, obviously, last time with Spectrum, the acquisition of Spectrum.It's been difficult to do more consolidation because the capital structures are very different between the different companies and also the business models are quite different. But what we really believe in is that as an alternative to consolidation, you will see more partnerships and collaboration among the different players. And we will show you some great examples of that today as well.I just want to remind you of how we see the TGS investment case. So for those of you who are not familiar to the company, let me just repeat how we look at that. So if you start on the left-hand side, the dividend story is quite unique for any oil service company -- or compared to any other oil service company. We have a dividend yield today of about 5.7%, but it's actually close to 7% if you include the buybacks as well, which is a quite unique story for oil services.We also have a 10-year track record of paying a dividend. And in fact, we paid more than $1.1 billion in dividends over the past 10 years. That's more than the current market cap of TGS paid out to shareholders as a dividend.And the strong balance sheet that we have allows consistency in the dividend. As you see on the second bullet point on the business model, we have a cash outflow that is easily adjusted to the market. So when we enter into situations we've been through in 2020 and 2021, we can very quickly adjust our cost base such that our cash flow remains solid.And I'm proud to say that the free cash flow of TGS over the past 4 quarters has been $135 million. Obviously, a significant part of that has been spent on dividends. Some part of it has been spent on share buybacks, and we've also done M&A as part of that strong inflow.So we clearly have countercyclical qualities in our business model, and this is something we have that has helped TGS through both good and bad times in the past and will continue to do so in the future.Energy data. As I said in my introduction, we're getting more and more excited about the new initiatives that we have. We're transitioning from being a leading data company within oil and gas to being a leading data company also for other energy data types. And as I said, the progress in that regard has been better than we expected. We are still looking at some interesting acquisition candidates. But in the meantime, we're also developing organic products that are very excited and where we get good feedback from our clients. So we're capitalizing on existing data, software and platform and then building a very similar system in new energy transition-related industries as we've been doing for seismic and well logs and other types of data for many years.ESG is getting more and more important, and I'm very pleased to see that TGS ranks #1 in the world among 110 oil service companies in terms -- in the latest survey from Sustainalytics. And this was announced yesterday, and it's a great achievement by TGS and really proves that what we've done in terms of ESG efforts internally has paid off really well. In fact, we have the lowest Scope 1 and 2 emissions in the peer group, and we have a goal of becoming carbon neutral within 2030.But back to Sustainalytics, there were 110 energy service companies as part of that survey, and TGS scored the lowest, and low is good in this regard, meaning that we have -- we are considered to have the lowest ESG risk among all the oil service or energy service companies in the world that took part of that survey. So very, very pleased about that as well.And then TGS is a recovery story. We know exploration is at record low levels at current. That is not sustainable. We've already seen signs of that unsustainability in terms of gas prices reaching record levels. We see oil prices reaching top 5 or the highest levels they've seen in the last 5 years. And as a result, the consumer has to pay for this. So the consumer will feel the burden of that with higher energy prices and higher electricity prices and you name it.So we still believe that there is a great future for exploration. We still think it's going to take a little bit of time, but we have definitely passed or turned the corner, and we're moving into a better market.The multi-client model continues to provide the best value proposition. And last but not least, we are well positioned when the market turns to take advantage of that.So I want to move on and talk a little bit about the operational highlights and what we have going on right now and talk a little bit about some of the future projects you will see entering into 2022. So we'll start with Latin America, which has been a growth area for TGS for the past couple of years, obviously, significantly impacted by COVID there as well, but it's been a good and profitable area where TGS, in many of these countries, have a leading market share.We have signed an agreement with Staatsolie, which is the state-owned oil company in Suriname. And as you know, Suriname is adjacent to Guyana. It's a very hot exploration area at current. And that agreement is signed in a consortium with CGG and BGP, so another example of the collaboration initiatives within our industry.The consortium has exclusivity to acquire, promote and license new multi-client 3D programs and also legacy data reprocessing offshore Suriname. So this is a big program that we're starting up in Q4 of 2021.The acreage includes 3 blocks recently awarded and then current open acreage that will be offered in a 2023 bid round. So we're doing a combination of shooting over held acreage and also new acreage or open acreage that will be bid quite shortly. So data will be available for our clients in H2 of 2022.Moving to Europe. We just finished the first part of the NOAKA OBN survey. This is part of our strategy that we have talked about many times to you before, to provide the next-generation seismic data in what we call the ILX area, so infrastructure-led exploration area of the Norwegian continental shelf.It's the first season that we completed in October 2021. So we have done about 300 square kilometers. That's about 2/3 of the total program. And we are committed to complete the acquisition over the remaining area in next summer in 2022, and this is pretty much a fully funded survey. So it's a survey that we will continue and then finish up in 2022.If we move over to Asia Pacific. We've announced the Sarawak. So that's a Phase 1 of another collaboration initiative that we're doing together with partners. So this is a consortium of TGS, Schlumberger and PGS. This is a survey that covers an area of up to 8,600 square kilometers, is the first phase of a multiyear contract, and the survey includes acreage in the Malaysia 2021 bid round. So again, another example of partners working together and really taking advantage of each other's strength. And I think that's, again, something you will see more of in the future in our industry for sure.And then touching on the U.S. Gulf of Mexico. We call the headline improving outlook in the Gulf of Mexico. And the reason for that is that we see a combination of a low breakeven cost and lower GHG emissions from the current production in the GOM. That puts GOM in a very favorable spot compared to other basins in the world.So most IOCs have GOM on the strategic priority list. So you see all the big players playing in the GOM, but you also see NOCs entering the basins. There are several NOCs entering the U.S. Gulf of Mexico over the past couple of years. And in addition to that, we see small independents who are preparing to enter the basin again. So this is going to continue to be a very important area for TGS going forward.License rounds are to be restarted. So we will have a license round in Q4 of 2021, it's coming up in late November, and then another one in the first half of 2022.And we have new OBN projects in advanced planning phase. We're not ready to announce anything today, but it's something you should definitely look out for because there is no secret that we have permits, and having permits in the Gulf of Mexico have great value today because they don't award a lot of new permits. So we're working hard now with clients to try to get the necessary prefunding to get started on new OBN projects in the U.S. Gulf of Mexico.As I said, we are progressing well on the New Energy Solutions strategy. Most of you have probably seen that we announced a survey that we're doing together with MagSeis, kind of a traditional seismic test where we pilot an area where it can -- we can use subsurface data and imaging for wind and carbon capture and storage. So this is just another initiative that we're doing together with partners in terms of proving the value of the subsurface data and applying subsurface data outside the traditional oil and gas industry into the growing areas of wind and CCS, a very exciting project that we are carrying out together with MagSeis.We're also doing wind modeling data. So this is going to be part of our platform going forward, where our ambition is to be a data provider in all types of energy, transition-related industries, and one of them is obviously wind.We're also launching what we call a CCS Atlas. So CCS Atlas is a digital platform with carbon capture and storage or carbon storage data where you can -- as a client, you can subscribe to the platform. You can go in and review different basins and different reservoirs and get some kind of a risk matrix based on that and ranking model based on several characteristics that is in our database. So this is another example of digitalization of our industry, moving gradually into subscription-based services and providing data, providing very much of the same data as we've licensed to oil and gas for many, many years for a different purpose. And for CCS, we've already seen data sales that are being used, not to find new oil but to find reservoirs that we can store carbon. So very exciting development there as well.4C Offshore is developing well. We have a 44% growth in order inflow year-to-date. And we are evaluating further M&A opportunities within New Energy Solutions as well. We expect pro forma revenues from this business unit to be approximately $10 million for 2021. And as I said, we have ambitions to reach somewhere between 5% and 10% of total revenues already in 2022 should come from New Energy Solutions.Then we introduced Versal this morning. This is a unified seismic data ecosystem, and you see an example on the right-hand side. And basically, what you can see here is data from all 3 vendors. So you can -- from the same platform, you can go in and review and evaluate and even do some kind of interpretation of data from both PGS, CGG and TGS in the same unified ecosystem. And this is a great development. And as I said, this covers more than 70% of the total seismic data in the world.Versal connects multiple multiclient libraries for a unified data experience. And it allows customers to access the data, entitlements and also identify new opportunities in a cloud-based common ecosystem, as I said. So you see the address there that you can go in and have a look and play with the data and see how it looks real time.And then last but not least, I touched on the ESG performance. I think this slide does a great job in terms of telling what we have done just within the course of 2 years. So if you start in the upper left-hand corner, it's a Sustainalytics ESG risk rating where we ranked #1 in our industry among 110 companies. Moving to the right, State Street Global Advisors, we were rated as a leader and which means that we're in the top 10% of our industry. The Governance Group in the lower left-hand corner, we ranked among the top 15 companies on the Oslo Stock Exchange regardless of industry. And last but not least, the MSCI ESG rating where we're also above industry average in each one of the ESG categories.So this is important to us. This is important for investors as well. And I think when you look at different papers that you can invest in, our goal is that there shouldn't be any reason why you shouldn't be investing in TGS from an ESG standpoint. And I think this clearly tells you that TGS is a stock that you can invest without having any great ESG concerns because we rank definitely among the lowest in the industry in terms of risk.So with that, I want to hand it over to Sven Børre Larsen, who's going to go through our financials, and then we'll come back and talk a little bit about the market, the outlook and how we see the one. Thank you very much.

[Sven Børre Larsen, Chief Financial Officer]

Thank you for that, Kristian, and good morning, everyone. I have to agree with Kristian, it's really good to be back and present in person.So I will run through the financials for Q3 today. And I will start by going through the composition of the net revenues, starting on the chart on the top left-hand side with prefunding revenues. Prefunding in the quarter was $22 million. So although this is higher than we had in Q3 of last year, it's quite low in a historical perspective. Bear in mind that Q3 is normally high season in the Northern Hemisphere in terms of acquiring new data. So although we see an increase relative to last year, it's still at a very low level.Then moving to late sales on the top right-hand side, we had $33 million of late sales in the quarter, which is more or less the same level as we saw in Q2. And it's also, in a historical context, very low and a reflection of the very weak markets we are in.Then moving to the proprietary revenues on the bottom left-hand side, $5.2 million in the quarter. You can see we have had quite decent activity on the proprietary area in the quarter. This is related to imaging projects we do on behalf of customers. And you should expect the run rate to be somewhat lower going forward than you have seen in the past few quarters.Then in summary, it means that we had $61 million of revenues in the quarter.Then talking about operating expenses. Adjusting for some nonrecurring items that I will come back to later, we had operating expenses more or less in line with what we have seen in the past few quarters. It would have been slightly lower if -- under normal circumstances. But as we discussed, we had higher activity with respect to proprietary revenues and imaging projects on behalf of customers, which means that a smaller portion of our imaging costs are being capitalized on multi-client projects and are instead being expensed in association with the recognition of proprietary revenues.Then moving to amortization and impairments. We had $51 million of amortization in the quarter, which is quite low compared to what we have seen in previous quarters. $36 million of this was straight-line amortization of the vintage library, and $15 million was amortization of progress that -- or projects that are in progress. Going forward, we expect the straight-line part of it to go slightly up since we have now completed the large projects in Brazil, Campos and Santos. So they now go into vintage and will add to the straight-line amortization.Moving to the bottom left-hand chart, shows the operating profit still in negative territory by $18 million when adjusting for these nonrecurring items that I briefly mentioned.When looking at the investments, we invested $56 million in the quarter. Again, as I said, low in a historical context for our Q3 but slightly higher than what we saw in Q3 of last year. We had a prefunding rate that was relatively low at 40% in the quarter. We expect this to be somewhat higher in Q4.Then moving to the income statement. As I already said, we had $61 million of revenues in the quarter. And due to these nonrecurring costs, the cost level was high in the quarter. The largest portion of the nonrecurring costs relates to settlement of the Skeie case that was reached -- the civil matters with the Skeie case that was reached now in October. So I'm glad to say that this is the last time you will hear about that or hear about this case that happened 12 years ago. We have also had some severance costs related to cost efficiency programs being executed. You should also note that other operational costs in Q3 of last year were artificially low as we had some cost reversals booked in that quarter. So it's not really comparable for the underlying cost level.When subtracting these costs, we ended up with an operating result of $28 million and result before taxes of $29 million -- minus $29 million. The tax rate was rather low in the quarter at 10%, and this has to do with the mix of -- between low and high tax jurisdiction with respect to profits and losses booked. All in all, this gave us a net result of minus $26 million or corresponding to an EPS of minus $0.19 in the quarter, which is the same as we had in Q3 of last year.Then moving to the balance sheet. You see here that goodwill is higher than last year, $304 million. That has to do with the 4C acquisition that was executed in Q2. You also see the multi-client library being significantly lower than last year. It's slightly up actually compared to Q2, but apart from Q2, this is the lowest level we have seen since early 2012, actually. And this is obviously -- the low library value is obviously a reflection of high amortization and impairments that we have booked over the past few years, but this is also a reflection of the quite low unit cost in our investments over the past few years compared to what it used to be if you go 7, 8, 9 years back in time.The balance sheet remains strong with almost $200 million of cash, $198 million of cash. And the solidity is strong with an equity ratio of 80% at the end of the quarter.Then moving to the cash flow statement. Q3 is normally -- not a strong cash flow quarter normally. So this quarter, we -- after paying dividends of $16 million and buying back shares of almost $7 million, we had a negative net cash flow of $22.7 million -- or sorry, $24 million, which reduced the cash balance down to this $198 million. If you look at the year-to-date numbers, we have had strong cash flow with free cash flow of $108 million in the first 9 months of the year compared to minus $4 million actually in the first 9 months of last year.Then moving to dividends. The Board has resolved to maintain the dividend at $0.14 per share for -- it says Q3 on the slide there. It's obviously for Q4 2021. The share will trade ex this dividend on the 4th of November, and it will be paid out to the shareholders on the 18th of November.In addition, during the quarter, we bought back a little bit more than 600,000 shares worth $6.6 million. So it means that we have approximately $7.5 million left of the $20 million share back program that was announced earlier this year.And by that, I hand the word back to you, Kristian.

[Kristian Kuvaas Johansen, Chief Executive Officer]

Thank you, Sven. We've talked a lot about the current exploration activity level not being sustainable. And I'll talk a little bit about that on this slide. I think, first of all, you'll see on the left-hand side there, you see a bar chart, and the bar chart shows the total discoveries or the volume of the discoveries since 2011, so over the past 10 years. And what you see then is that in terms of oil, which is the blue bar, it's about half of what it used to be, so the levels being found or discovered right now is about half of what it used to be early in this time cycle. And the same goes with gas, which is actually much less than that. So we're talking about 1/4 of the volumes that have been found in 2020 compared to, for example, 2011 and 2012. So this is obviously not a great development, and it means that there is a lot of pressure on our clients now to find more oil.At the same time, you see they invest less and less in multi-client. And you cannot really draw the conclusion that spending less on multiclient means that you're going to find less. But I think there is clearly a correlation between the 2 because multi-client is typically a good measure of your total exploration spending. And the fact is that companies are spending less on exploration now, but they need to find more. And that's obviously not a great combination.In fact, one of our clients told us quite recently that they need -- over the next 5 years, they need to find 4x as much oil as they found over the past 5 years. I mean it clearly highlights the need to spend more money on exploration, and there is a great push to do that. But obviously, a lot of these clients also face a dilemma of how much do you spend on the energy transition versus spending on exploration.But I think this slide does a good job in terms of highlighting a big issue now for the energy companies and for the world as a whole that we simply don't have enough oil. And then there are people saying, well, all the oil that we need for the next decades have already been found. I think the last bullet point is important in that regardless. So substantial amounts of these proven resources will never be developed. And there is a reason why they never have been developed, because they're either too high cost, it may be too high risk or it may be, and even more important right now, too high GHG emissions in production, which means that these discoveries will never be put into production.If we look at the value proposition of exploration, it's probably at an all-time high level. You can see that from the left side. You look at the exploration cost index, which is basically what is the cost of drilling and seismic and your total exploration costs, which typically accounts for somewhere between 10% and 20% of the overall E&P costs. But you look at that and it's pretty much at an all-time low levels. I mean rig rates are really low, seismic rates are low. The prices of multiclient data are really low. And at the same time there, the oil price is reaching not all-time high levels, but if you look at the gap between the 2, is definitely close to all-time high. It's a very good value proposition for exploration.We see continued challenging market conditions in the near term, but signs of a trough being reached. I talked about that at Q2 presentation that we have passed the trough despite the fact that Q3 wasn't a great quarter, and we didn't expect it to be a great quarter, but we still repeat the message, and we feel the trough was passed in Q2, and we think that we are slowly moving into a better market. We've already seen the signs of that in terms of signing new commitments for prefunding and some of their contracts and new projects that I talked about today.We also see that through improving license round activity. I think over the course of 2020 and 2021, you've seen a lot of license rounds being delayed or postponed for good reasons, of course. You don't want to do a license round -- even if the oil price is high, you don't want to hold a license round if you know that there's not going to be any demand because all companies are busy with restructurings or reorganizations and probably a combination of the 2.But the fact now is that what we see now for 2022 in terms of licensing round is pretty much back at the levels we used to see back in '18 and '19. We see a lot of African countries finally getting out and awarding acreage again, and we see Latin America acreage being awarded. You see Brazil, Suriname, Argentina and Trinidad on the list. And you also see Asia Pacific with countries such as India, Indonesia and Malaysia, where you haven't seen much activity over the past 2 or 3 years, but they're finally coming back now of -- and holding licensing rounds, which is a key to drive our late sales for the future, of course. So we're hopeful when we look at this, and we're hopeful that we will see increased demand from our existing data library but also new commitments in terms of prefunding for new projects.So with that, I just want to summarize the presentation today. So Q3 of 2021, net revenues of $61 million, segment, obviously, a result that we're not very proud of. But again, as I said, we see lights of -- at the end of the tunnel, and we see a slow improvement in the market, which is obviously good.We're extremely fortunate to have a very strong financial position. We've kept that strong financial position throughout the pandemic. And having net cash of $198 million after free cash flow of $135 million over the past 4 quarters is truly unique in our industry. That means that we can continue to pay a dividend and a dividend yield of close to 7% if you include the quarterly dividend with the buybacks of $7 million.Yes, we see a continued challenging market conditions, but we see improvements, and that is good. And we're also progressing well on the New Energy Solutions strategy, which I talked about today. And last but not least, we launched Versal, which I talked about already, and this is, again, something we do together with partners, a great example of collaboration between the different companies in the seismic industry.So with that, I want to thank you very much for your attention today. We have Q&A, and I want to ask Sven Børre to come up and assist me in the Q&A where we're going to have, I guess, questions from the web.

[Kristian Kuvaas Johansen, Chief Executive Officer]

I have one question that I just received on my phone while I was sitting here from one of the analysts who said, "You've been going through a couple of the regions where you have activity for Q4 and into 2022. Can you also talk a little bit about the outlook for the onshore market and in particular in the U.S. and Lower 48?"So I'll do that. I think what makes onshore quite unique is that it's definitely less impacted by the ESG pressure and less impacted by Biden's politics in terms of pausing the new leases and that kind of stuff. So I think what you will see is a pickup -- a gradual pickup in activity. I think the reason why it's taken so long -- because the oil price is at a great level compared to the breakeven cost for most of these companies. But the reason why it's taking a while is that they're being really disciplined. They've learned from the past where they pumped up the production too fast and then losing money. And there's been a lot of money burned over the years in U.S. onshore. But I think some of these players have learned. I recently visited some of these guys in just a couple of weeks ago. And we definitely see more optimism and we definitely see that although they're still disciplined, we think there will be a gradual increase in terms of spending in U.S. onshore as well.

[Sven Børre Larsen, Chief Financial Officer]

Okay. We have some questions on the web. So first one from Morten Nystrøm of Strawberry Capital. "You didn't mention U.S. onshore when you went through the different regions. What do you see with respect to activity? And do you expect your investments in U.S. shale to be up in 2022 versus 2021?"

[Kristian Kuvaas Johansen, Chief Executive Officer]

Yes, very similar question to what I just answered. But yes, I think in terms of investments, yes, I think we will invest more in U.S. onshore in light with the recent optimism that we hear in the industry. So I think there will be higher investments for 2022. They're not going to be significant. We're not going to double our investments, but I'm pretty confident that we will invest more in onshore. And as you know, these projects are typically highly prefunded. They had slightly different characteristics to some of the frontier offshore projects. So quite optimistic that you will see growth there, yes.

[Sven Børre Larsen, Chief Financial Officer]

And then we have some questions from John Olaisen in ABG. "Are you likely to see significant late sales ahead of the 17th of November lease run in the Gulf of Mexico? Or was the notice too short?" And on that same note, are we sure that there will be a Gulf of Mexico lease round in March 2022?

[Kristian Kuvaas Johansen, Chief Executive Officer]

Yes. I think the first question is hard to answer, whether it's going to be significant late sales. Yes, there will be late sales related to that round. We think that round is going to be -- there's going to be reasonable interest for the round. Yes, the time limit is quite short, so that may probably put a little bit of a limit to how much impact you can see. But I think there will be sales related to that, and we're quite optimistic that we're going to have a few of the smaller players will definitely bid there. That's indications we're getting. And as I said, this is really a place where you see a lot of the big companies will definitely take part of that round.In terms of the round scheduled for next year, yes, we think that's going to happen. In fact, I think they're required by law to have that round in 2022 because it's part of a 5-year plan. So I think it will have serious consequences if they don't do it.Then I think the big question is not whether there's going to be a round in '22. The question is going to be what is the new 5-year plan going to look like because the new 5-year plan for the U.S. GOM and other areas is due sometime later this summer of 2022. So we don't have much clarity on that, but I just read a recent report from McKinsey on the U.S. Gulf of Mexico, which is quite optimistic in terms of, as I said, the combination of very low emissions and a low breakeven price puts a lot of pressure on Biden to open up or at least have some activity going forward.Also I heard some indications that one solution would be to go back again to only one round per year. So that at least the government shows that they're taking some cautionary actions in terms of the activity level there. But that's just an indication of a rumor that we've heard so far. So we're not sure what's going to happen. We think there will be continued licensing in the U.S. Gulf of Mexico. That's our best guess.

[Sven Børre Larsen, Chief Financial Officer]

And then John has another question on -- related to M&A and New Energy Solutions. "Could you shed some more light on this? What kind of companies are you looking at? Which segments of the renewable industry size and not the least, how big acquisitions in dollar value should we expect and also timing of potential acquisitions?"

[Kristian Kuvaas Johansen, Chief Executive Officer]

Yes. That's a lot of questions. I think when we look at the new energy solution-related industry, so when we look at energy transition-related industries, it starts with CCS, then you have geothermal, you have offshore minerals, you have wind and you have solar. And our ambition is to build up a database or a digital platform that contains data within all these energy-related -- or energy transition-related industries.And I think there is -- we already have the largest subsurface database in the world. So we can fill or use our existing data for geothermal and offshore wind -- sorry, offshore minerals. We can also use our existing data for CCS, so carbon capture and storage. But where we don't really have a lot of data to support industries would be in wind and solar. So I think without saying too much, the M&A candidates will definitely be within wind, solar or a combination of the 2.When is that going to happen? Well, I think we will definitely see acquisitions -- well, if we follow our plan, it will be in the first half of 2022, feel pretty good about that. You're in charge of M&A. So I see you're nodding here, so I guess I get your approval to say that. But yes, we're continuing to pursue M&A opportunities within wind and solar, first and foremost.

[Sven Børre Larsen, Chief Financial Officer]

And then he wants us to elaborate a little bit on the write-down risk, the impairment risk of the multi-client library for the fourth quarter. I can cover that.Of course, when the market is as weak as it is now, of course, we have to take a thorough look at it. However, we are in the budget process now, so it's too early to conclude firmly on what we need to do there. But it's certainly a risk that we will have to take some impairments given the market conditions that we are facing currently.And then we have questions from Jørgen Lande at Danske with respect to Versal. He wants us to elaborate a little bit on the commercial model, whether it's subscription based or whether it's an open model, and yes, basically explain the commercial model behind that show.

[Kristian Kuvaas Johansen, Chief Executive Officer]

So I mean this is a multiphase project. And I think the Phase 1 is -- what we've done right now is to get all the data in one platform, making sure that every company behind the CGG, PGS and TGS has the data in the cloud and easily accessible and in the same platform. And then Phase 2 will be, okay, so when we have all the data together, what can we do with that data? Could we start playing with interpretation tools? Can we do artificial intelligence tools and add to that platform, stuff like that. That's still under development and still being discussed, but I think you can easily see that in a few years from now, this could develop into a commercial model that is very different to what we do today.In terms of subscriptions and how it works, well, the plan is that you will have -- you will pay a subscription fee to access that platform. That is not going to be a big fee as long as the platform only contains existing data. But this is what I say, the next phases of this would typically be that you add other things to the platform. And then, obviously, as a result, you will add more value to it and price it differently, of course.So it's a really exciting project, but it's still at a very early stage, and we are dependent on, obviously, buying from all partners in terms of making the next steps here. But so far, it's been a very smooth and good project with -- and I think I speak on behalf of all 3 companies when I say that so far, there's been a great success for all of us.

[Sven Børre Larsen, Chief Financial Officer]

We then have a question from Edgar Xu, which simply says, "Are TGS looking to buy PGS?"

[Kristian Kuvaas Johansen, Chief Executive Officer]

Well, I -- that was a very direct question. I wasn't really prepared for that. I guess the answer is that if we were to do that, we would probably send out a stock exchange release on it. So now we don't have any immediate plans to do that.

[Sven Børre Larsen, Chief Financial Officer]

And then we have a question from Mick Pickup at Barclays. "You talked of more cooperation going forward. How do your clients see this in a pretty consolidated industry? What do your partners bring that you don't have versus the traditional market? Is this a capital availability issue?"

[Kristian Kuvaas Johansen, Chief Executive Officer]

No. I think it's a great way to benefit from different strengths. So one great example is we've seen a shift in our client base and we see a gradual shift in our client base where IOCs probably become less important if you look at the next 5, 10, 15 years. NOCs may become more important, and you also need to stay very close to small independents.We're all different. So we can have some strengths. I mean one of TGS strengths is that we're really close to small independents in the U.S. Gulf of Mexico, for example. One of the weaknesses will be that we don't have an office in China or in Malaysia, right? It may be that one of our partners have that or they already have a subsidiary in that country. So really making sure that you play on and benefit from each other's strength is really what I see as a key benefit from some of these partnerships that we've been talking about today.And I think clients also benefit from that because you have a much more complete product to offer. So I think, so far, there's been no complaints from clients. I think, in general, I think they appreciate the fact that we work together in a collaborative way.

[Sven Børre Larsen, Chief Financial Officer]

And then we have a couple of fairly similar questions from Morten Nystrøm again and also Andreas Buxton. They want to know how Q4 has started in terms of late sales, both compared to how the previous quarters this year started and also compared to previous fourth quarters.

[Kristian Kuvaas Johansen, Chief Executive Officer]

Yes. I can't really comment on what we have done so far. I don't think that's fair. But what I can say is that we have no reason to believe that Q4 is going to be different to previous Q4s in terms of being the kind of end of year quarter in terms of accessing end-of-year budgets, et cetera, et cetera, which means that late sales in any given Q4 is typically higher than for the previous 3 quarters. We think that's going to be the case this time around as well. Will it be like 2019? No. But in terms of -- compared to the other quarters of 2021, we think it's going to be the best quarter in terms of late sales.In terms of new investments and prefunding, I think you can see that from the activity reports that we share in terms of vessel schedules, et cetera. As I said, there is a great hope that we will announce a few projects over the next few weeks. And when and if we announce these projects, we'll probably include a vessel schedule so that you can see how Q4 will play out in terms of activity level but also give you an indication of how prefunding is.So I think you will have a pretty good understanding of what the prefunding level is going to be. And in terms of the late sales, as I said, I mean, play with the numbers and see how Q4 has played out relative to the previous 3 quarters in any given years. And I think this year is going to be no different to that.

[Sven Børre Larsen, Chief Financial Officer]

Okay. That's it.

[Kristian Kuvaas Johansen, Chief Executive Officer]

All right. That's the last question. I want to thank you very much for your attention, both the people in the room here but also the people who are following the presentation on the web. Looking forward to hopefully present a better result after Q4. So hopefully be back again physically in Oslo to present that and see more of you then. So in the meantime, stay safe and have a great day and have a great weekend when that comes up. Thank you very much.