TGS ASA

OSE:TGS

Earnings Call Analysis

Strong Q3 results with synergies and positive outlook for TGS.

TGS reported strong Q3 results, with revenues of $501 million, up from $455 million last year, and a notable EBITDA increase to $280 million. The company achieved $55 million in annual run rate synergies post-merger, expecting $70 million by year-end. Credit ratings improved, with S&P raising its rating by three notches. Looking forward, oil price volatility remains a concern; however, TGS anticipates single-digit revenue growth in 2025. The organization plans to maintain dividends at $0.14 while targeting net debt reduction to $250-$350 million.

Strong Financial Performance in Q3

In the third quarter of 2024, TGS delivered impressive financial results with total revenues reaching $501 million, marking a significant increase from $455 million in the same quarter last year. The EBITDA was reported at $280 million, up from $268 million a year prior. After adjusting for $16.4 million of nonrecurring merger-related costs, the adjusted EBITDA grew to $296 million, surpassing a 10% year-over-year growth. The EBIT showed a robust increase to $104 million compared to $82 million last year, with an adjusted EBIT of $120 million, reflecting strong operational performance across the board.

Merger Integration and Synergies Ahead of Schedule

TGS reported significant progress in its merger integration, achieving $55 million in annual run-rate synergies by the end of Q3 2024, ahead of its stated goal of $110 million to $130 million by year-end 2025. This represents an increase from previous expectations of $45 million, indicating positive operational synergy realization. By the close of Q4, TGS anticipates reaching around $70 million in annual synergies, showcasing efficient integration processes.

Multi-Client Business Gains Momentum

TGS's multi-client business experienced strong activity in Q3, generating revenues of $277 million, which is a slight increase from $268 million in the same period last year. Investment in multi-client initiatives has decreased to $129 million from $181 million year-over-year, leading to a healthy sales-to-investment ratio of 1.9 compared to 1.7 in the previous year. The firm has adjusted its full-year guidance for multi-client investments to a range of $425 million to $450 million, suggesting consistent growth in this segment, despite the summer's seasonal fluctuations.

Contract Business Sees Continued Growth

The contract segment saw impressive growth, driven by robust operational demand in the offshore seismic vessel market. Revenues from the OBN business amounted to $127 million and contributed to a total of $291 million in gross revenue for the contract business, a 12% increase from Q3 2023. The business maintains a consistent EBITDA margin of 26%. Despite lower active vessel time at 77% compared to 86% last year, improved pricing and strategic geographic deployment have led to higher overall contract revenues.

Outlook and Guidance for Future Growth

Looking ahead, TGS has a positive outlook for the upcoming quarters. The company expects the OBN crew count to remain high, ranging between $3.5 million and $3.8 million for Q4 2024, while streamer fleet utilization is projected at around 70%. The CEO expressed confidence in filling the vessel schedule with promising activity levels anticipated for 2025, potentially leading to enhanced revenues. Although uncertainty in oil prices persists, TGS's focus on production budgets rather than exploration budgets positions it favorably against broader industry volatility.

Dividend Policy and Cash Flow Management

The company continues to uphold its dividend policy, declaring a regular dividend of $0.14 per share, with an ex-date set for October 31, 2024. TGS has effectively managed its cash flow with $265 million generated from operations this quarter, despite facing $123 million in negative cash flow from financing activities primarily due to dividends and interest payments. The current cash position stands at $214 million, indicating sound liquidity amidst ongoing projects.

Increased Credit Rating Strengthens Financial Position

TGS announced notable upgrades in its credit ratings from both Moody's and S&P, with S&P raising its rating by three notches and Moody's by two. This enhanced credit profile will facilitate favorable refinancing conditions for the company's debt inherited from the PGS merger, promoting a more robust financial footing moving forward. The management aims to bring the net debt down to $250 million to $350 million, with current levels reported at $425 million.

Earnings Call Transcript 2024-Q3

[BÃ¥rd Stenberg, executive]

Good morning, and welcome to TGS Q3 presentation. My name is Bard Stenberg, Vice President of Investor Relations in TGS. Today's presentation will be given by CEO, Kristian Johansen; and CFO, Sven Børre Larsen.



Before we start, I would like to give some practical information. For those of you on the webcast, you can type in questions on the webcast platform. We will address those after management's concluding remarks. I would also like to draw your attention to the forward-looking statement showing on the screen and available in today's earnings release and presentation. So please study that carefully.



With that, I give the word to you, Kristian.

[Kristian Johansen, executive]

Thank you, Bard, and thanks to everyone who's watching the webcast or are in this room together with us.



So I think, first of all, before we hit the highlights for Q3, we're obviously part of a world with geopolitical tension and macro uncertainty, which are impacting the oil price volatility. And in times like that, I want to say a big thank you to all our 2,000 people for delivering a very strong result, keeping their eyes on the ball in terms of not only keeping safe operations, but also building a strong backlog of streamer seismic for the winter season, continuing to deliver strong operational results in our OBN business and a great multi-client result in Q3.



So hitting the highlights, we had total revenues of $501 million. That compares to about $455 million in Q3 last year. We had an EBITDA of $280 million, and that compares to $268 million in the same quarter of last year. Keep in mind, we had $16 million or $16.4 million of nonrecurring merger-related costs in the quarter. This number has not been adjusted for that. But if you adjust for that, the number is $296 million, and that is a growth of more than 10% compared to last year.



Our EBIT was $104 million. That compares to $82 million in Q3 of 2023. But again, if you adjust for that, the number is $120 million and $120 million obviously compares very favorable to last year.



We're also very happy to say that we have realized a lot of the total merger synergies that have been announced. We have a target of $110 million to $130 and we're ahead of the plan, and we're actually adjusting our -- where we expect it to be at the end of Q3 to $55 million of annual run rate synergies, and then we're going to be at $70 million by the end of the year. So that's even up from what we announced a couple of weeks ago at the Capital Markets Day.



Last but not least, a substantial credit rating upgrades by Moody's and S&P. And as we expected, we have a far better rating than the former PGS. And obviously, that's going to be key to realize the synergies related to financial cost in the future.



I'll give you a brief business update on the data acquisition activity that we had in Q3 of 2024. I'm not going to go through each and every dot on the map. But what I can say is that you see a lot of operations in Norway in terms of seismic. You see our NES, our New Energy Solutions activity is mainly centered around Europe, but there's also a dot outside California. So we just started a new project measuring wind and ocean metadata outside California in preparation for the licensing rounds taking place in that part of the world.



You see a lot of activity in the U.S. Gulf of Mexico this quarter. You see Brazil with 2 operations this quarter, 1 multi-client, and 1, 4D contract. Africa is becoming more and more important, and that's going to be important to fill up the vessel schedule for the winter time as well. But you see both an OBN operation and a contract vessel operation in Africa this quarter.



And then we see continued growth in Asia Pacific. So you see our operations both in Indonesia and Malaysia this quarter. So a very busy quarter. You can clearly see from the map that TGS is a bigger company now and obviously, with operations in both multi-client, OBN, Streamer Seismic, and New Energies.



I'll give you a quick update on the different business units. So we'll start with multi-clients. Again, a strong quarter driven by material M&A transfer fees and solid prefunding of ongoing projects. If you look at the financials below the picture there, you see we had multi-client sales of $277 million. That compares to $268 million in Q3 of last year. But if you look at the investments, you see that investments are down from $181 million to $129 million, meaning that the last 12 months sales to investment is now $1.9 this quarter compared to $1.7 in the same quarter of last year.



Just look at this quarter in isolation, we're about $2.15 versus $1.5 last year. So a very good quarter in terms of multi-client sales. And obviously, this is probably the more volatile part of our business, but it's always good to come back and beat expectations on the multi-client side, which we did this quarter.



And then on the contract -- or before we go to that, a few new surveys that have been announced, PAMA 3D, big survey in Brazil that we started this quarter and clearly leveraging the value of the integrated model. This is a survey that we do 100% TGS, and in previous surveys in Brazil, we typically had to split up the project such that we share the multi-client part with partners.



And then we have a different company doing acquisition for us. So we have to pay for acquisition services. And on top of that, we've not been doing processing ourselves. So we've shared that with partners as well. In this project, we keep 100% of the profit, while in comparable projects in the past, it's been somewhere between 30% and 50%. So clear evidence that the model that we're pursuing now really has value and a value that we can leverage going forward.



We also announced a 2D multi-client survey in the Seram Basin. This is in Indonesia. And as it says here on the slide, it underscores TGS commitment to the region. This is one of the regions where we see significant growth and where TGS has a big combined library together with PGS and obviously well-positioned to acquire more data in the future.



Then it's time to go to contract. So strong growth in contract revenues driven by high OBN activity and improved streamer pricing. So if we look at the financials for the contract business, we had OBN contract revenues of $127 million based on record-high activity. And it may not look like that if you compare it to the $126 million, we had last year, but last year, we had $9 million of equipment sales that were not activity-related and obviously fell straight down to the EBITDA line. This quarter, the $127 million was not impacted by any sales of equipment.



On the streamer contract side, we had revenues of $164 million. This is gross revenues. All the numbers I'm showing here are gross, $164 million compares to $134 million in the same quarter of last year. The EBITDA margin for the contract business as a whole is 26%, so around where we've been on average for the past few quarters and slightly below our target, which would be around 30% for our contract business.



If you look at the normalized OBN crew utilized this quarter, it was about $3.8 million, which is very, very close to full activity or full utilization. So, if we could stay at between $3.5 million and $3.8 million, this is going to be a very profitable business. On the active vessel time, we had 77% in Q3 of 2024, and that includes, of course, multi-client. Last quarter, we had -- or the same quarter last year, we had 86% active vessel time.



The reason why our streamer contract revenues are significantly higher despite lower active vessel time is mainly due to the areas we operate. So, as you know, certain regions have significant uplift in terms of the cost and we can charge a higher vessel rate as a result of that. On top of that, we still see that we can -- or vessel rates are continuing to increase slightly. So, it's a pretty bright outlook for the contract business right now.



I know a lot of you are concerned about the utilization of the vessels for the winter season. I'm not concerned at all. In fact, our multi-client department is concerned because there's not a whole lot of capacity for our own multi-client projects. It's a good situation to be in, and I know that we need to get the final signatures and announcements in place. But I've been here long enough to not go out and promise stuff like that without being very, very sure that this is just around the corner.



So, in terms of new contracts, we had an OBN contract in North America announced this quarter. And we also had a 4D streamer contract in the Southern Atlantic, and that contract was announced. It was probably the first vessel announcement that we had since May. So, I certainly understand why you guys were getting concerned about the vessel utilization. And again, I -- if you go back 3 or 4 weeks, I was probably more concerned than what I am today. But finally, we see that things are about to materialize. So, in that regard, it's a positive development for the contract business.



On the New Energy Solutions side, we see continued growth in revenues and with improving margins. And you can see that from the table below the pictures. We had contract revenues of $16 million this quarter compared to $10 million in the same quarter of last year. We had multi-client revenues of $3 million versus $2 million of last year and total revenues of $19 million versus $12 million. So significant double-digit growth in our NES business.



And again, our goal is to continue to grow this business with double digits going forward. It's still going to be a bit lumpy because it's impacted by the vessel activity. And whenever we go out and we do one of these ultra-high resolution surveys, it adds a lot to the revenue line and also the profit line. But these surveys will come in certain quarters, and then there will be certain breaks in between.



EBITDA margin is strong. It's 22%. And obviously, this is a quite diversified business where we have operations in both CCS, offshore wind, and we also have activity through our subsidiaries, 4C, which is a data intelligence company or market intelligence company and then Predictor, who actually signed a contract now with Aker BP this quarter in terms of digitalization of the Yggdrasil area, which is a great contract for Predictor, and it's great for us to put the whole TGS behind Predictor in terms of signing a contract with a partner who is probably ahead of most other E&P companies in terms of digitalization efforts. So a great partner to have in terms of digitizing the Yggdrasil area going forward.



On the CCS side, we do a lot of interesting stuff in terms of assessing CO2 storage capabilities. We've done that now in at the U.S. Gulf Coast, Illinois Basin and Michigan Basin and again, using a lot of the data that we already have and targeting and tapping into different accounts, which has been the strategy for CCS. So it's not going to be massive investments related to this because most of the data is already there. So, it's more about preparing the data and packaging the data in a different way to sell to a different audience.



In offshore wind, we just completed an ultra-high resolution 3D survey in the New York Bight, and this is for the community offshore wind. And again, this is where we continue to see growth. And again, applying the same assets and applying a lot of the same technologies and methodologies that we've been using in seismic for more than 40 years to a different market. So very optimistic about the outlook of this business, continues to grow fast. Again, it's going to be lumpy in terms of quarterly performance. But I think overall, we've seen great growth at profitable margins.



And then last but not least, we have the Imaging & Technology, flat year-on-year revenues and actually a negative margin this quarter. You see we had revenues of $26 million gross, external imaging revenues of $10 million, and you see an EBITDA margin that is minus 3%. But again, this is one of the areas where you're going to see the highest synergies from the acquisition of TGS and PGS, and you will start to see the cost base is gradually coming down for Imaging & Technology.



We've also made a few announcements this quarter in terms of technology partnerships, one with Petrobras, where we're going to partner in terms of scientific research related to imaging technologies. And it's obviously a great achievement by the team in terms of being selected by Petrobras for such an important project.



Our software imaging AnyWare is something we acquired from the acquisition of ION. And you've probably seen already the announcement of a 4-year deal with Shell. Shell's deal is more than just a pure software deal. It's also a collaboration on imaging R&D going forward. So, something we're very, very excited about.



And last but not least, following that, we will continue to market our software and make it available for other clients as well. And this is an area where you will see that we will continue to sign up new contracts in terms of other companies like Shell and super majors and even NOCs who are looking at this.



On the merger integration status, again, I said we're ahead of our plan. Our plan is to deliver $110 million to $130 million of annual synergies, and we should get there by year-end 2025. We've already delivered on $55 million, and it doesn't mean that you see $55 million in the books already, but it means like the run rate that we have achieved so far is $55 million of annual synergies, and that's up from an estimate of $45 million at the Capital Markets Day in late August.



By the end of Q4, we're going to be around $70 million. That again is up from $60 million as previously communicated. So again, we remain on track. And again, my initial thank you to the organization definitely is valid for this one as well. I mean, the organization has been under severe pressure for the past 3 months in terms of delivering on the synergy takeout plan, the merger integration, but at the same time, delivering strong results for Q3. So again, a big thank you to our employees for that.



So, with that, I'm going to hand it over to Sven, who's going to go through the financials, and then I'll come back and talk about the outlook. Thank you.

[Sven Larsen, executive]

Thank you, Kristian, and good morning, everyone. So obviously, this is the first quarter with PGS included. So, there will be -- we have introduced a new reporting format that fits better with the business that we are now after that acquisition.



So let me start by going through the group financials. We -- as you can see on the chart on the top left-hand side, we had $501 million of produced revenue measured by percentage of completion on the ongoing multi-client service in the quarter. So that, as Kristian alluded to, was a very strong quarter with 10% growth over what we had last year. And what you see in the historical quarters here are pro forma numbers, so that's comparing apples to apples. So, a strong quarter in terms of the revenue development.



Net operating expenses came in at $221 million this quarter. You will see that's a little bit up and that has to do obviously with how much we capitalize or eliminate in each and every quarter, so we will fluctuate a little bit with that. In this quarter compared to the last quarter, we of course have more external revenues on the vessels, which plays a role also for this line.



So whenever we have more external contracts versus internal contracts, the net OpEx that is charged to the P&L obviously will be higher. And also, as Kristian mentioned, we have some operations, some vessel operations in high-cost countries, which means that you have a more flow through costs that is charged to the P&L, but you also have the associated revenue.



Then looking at -- yes, and also let me just mention that it includes $16.4 million of non-recurring merger related costs in this quarter. And then depreciation and amortization. Depreciation came in at $59 million in this quarter. And out of this, we had IFRS 16 depreciation of leases of a little bit more than $20 million. And then we had amortization of the multi-client library of $116 million this quarter.



All in all, this resulted in an EBIT or an operating result of $104 million this quarter, so a significant improvement compared to the previous quarters as you can read quite clearly from the chart. And if you adjust for the $16.4 million of merger related non-recurring costs, we're actually up at $120 million with a 24% EBIT margin. So indeed, a very strong quarter for us.



And then I'm going to go through each of the business units and the financial performance there. We see multi-client here first, $277 million of multi-client revenues in this quarter. And that was, as discussed already, driven by strong library sales, which were obviously supported by material transfer fees in this quarter. But we also had relatively high multi-client investments and solid pre-commitments from customers backing that. So all in all, a very strong development in our multi-client revenues in this quarter.



Then we had, of course, a high EBITDA, which you always will have in a multi-client business of $259 million. Multi-client investments came in at $129 million this quarter, so significantly up from the previous quarters in this year, but significantly below what we had in the same quarter of last year.



We have reduced our guidance slightly in our communication this morning, and we now expect a full-year of $425 million to $450 million on a pro forma basis on multi-client investments. We have incurred $327 million year-to-date as of the end of Q3, which means that you should expect it to be somewhere between $100 million and $125 million in Q4. So we still have some opportunities that we are looking at and that we may conclude to do or may conclude not to do. And we also have some projects that have been deferred into 2025.



And as you can see then, given the strong development in our multi-client revenues, we see that the sales to investment ratio, which is a very important value driver in this multi-client business, here measured on our last 12-month basis because it doesn't really make sense to look at it on a quarterly basis, is trending upwards, $1.9 million at the end of Q3. And this is more or less in line with the historical average. We've been at $1.9 million to $2-ish million in terms of the historical average on a consolidated basis.



Then contract business, and this consists of both OBN and streamer vessels now. On the chart there, you can see that we had $94 million of external revenues in the OBN business, and we had $97 million of business conducted mostly on behalf of our own multi-client business, but also a little bit in the NES business related to our site characterization campaign that we did in the quarter. So this gave a total revenue, a total gross revenue for this business of $291 million.



The OBN business accounted for approximately $127 million of this. And in the OBN business, almost all that we did was external on behalf of external customers, so no or very limited of multi-client or OBN activity in this quarter, which means that the remaining part of it was related to the streamer vessels.



So as you can see also when you look at gross revenue of $291 million that compares to $260 million if you add the two bars in Q3 2023, which represents a growth of 12%. So also on the contract activity side, we had a quite strong quarter. We had contract EBITDA of $77 million which represented a margin of 26% and more or less in line with where we have been the past few quarters.



On utilization of the 3D streamer fleet, which is obviously a very important value driver on the streamer part of the business, we had 77% commercial utilization of the fleet, and this has been split by 57% on the multi-client side and 20% on the external customer side or contracts with external customers.



Then we have introduced a new KPI for the OBN business where we have normalized the crew count, depending a little bit on the size and the content of that particular campaign that we're doing, $3.8 million in this quarter. You can see that that's quite high in a historical perspective. We expect it to remain high for Q4. So, we indeed have a very solid order backlog for the OBN business. And this measure here will be useful also for estimating the revenues generated by our OBN crews.



This is, of course, something we're going to report every quarter, and you can already see from the pre-announcement that we did on the 6th trading day after quarter end that we also included information about fleet utilization on the streamer side and this normalized crew count in addition to the multi-client investments. So those are the 3 parameters that we intend to preannounce on the 6th trading day after the quarter closes every quarter. 



Imaging revenues, $10 million of external revenues in this quarter, plus $16 million of internal revenues, and that's, of course, mostly related to data processing of our own multi-client projects. This is a low-margin business but of course, we have an intention of improving the margin in this business also significantly. We have had a very robust order inflow year-to-date in this business. So we expect margins to improve. Our target going forward is to keep that margin well into the positive territory.



On the NES side, we had $19 million of revenues this quarter, and we had $4 million of EBITDA resulting from those $19 million of revenue. So a reasonably solid EBITDA margin in a strongly growing business.



Bear in mind that this business or the top line here will be quite lumpy because we have an underlying business, which ticks in a more stable manner every quarter. But then the site characterization business or whatever kind of subsurface data we are collecting using our streamer vessels will vary a little bit from quarter-to-quarter depending on the campaigns we have. So far, that part of our business is a bit seasonal where we do most of those type of campaigns in the Northern Hemisphere during the summer half of the year. So just be prepared that it will be a bit lumpy, although there is an underlying growth rate, of course, in that business.



This takes me to the cash flow statement. As our IFRS cash flow statement tend to be a bit difficult to understand because there is a quite strong disconnect between the IFRS operating results, IFRS EBITDA and our cash flow. We have created this table, which starts with produced EBITDA instead. As you know, our produced numbers or POC numbers are much more linked to our cash flow. You'll see here that the change in balance sheet items line here will vary much less than you will see in a similar IFRS setup. So I think this setup will be helpful to understand the cash flow a bit better. But cash flow is cash flow. So the end result will be the same in both IFRS and our produced accounts, obviously. 



So this quarter, we had $265 million of cash flow from operations, and then we capitalized multi-client investments were $129 million as we discussed earlier. Then after adjusting for the noncash elements of the multi-client investments and the multi-client investments that were capitalized in other periods, we had paid multi-client investments of $122 million. So there, you also see the link between the reported or capitalized multi-client investment number and what actually we pay for in the cash flow statement.



Then we had CapEx of $24 million. Then you see the impact of the PGS merger in the next line, investments through M&A. That's simply the cash on the balance sheet that we took over through the PGS merger. Then a little bit of interest, which means that all in all, cash flow from investment activities were $59 million negative in this quarter.



Then you have cash flow from financing activities there. There are a few things to note there as well. On the interest paid, it's $35.6 million this quarter. So it varies a bit from quarter-to-quarter because on the big bond loan, the $450 million bond loan, we pay we have semiannual interest payments. So it happens in Q3 and Q1, which means that the interest payments will be significantly lower in Q4, of course.



Then we had dividend payments, our regular dividend payments of $27.5 million. But as you know, we also compensated the previous PGS shareholders for the dividend that TGS paid prior to the merger in Q1 and Q2, and that amounted to $18.8 million paid in early July. So all in all, we had negative cash flow from financing activities of $123 million this quarter. When we sum all of this up, it meant that our cash balance changed by or increased by $82.6 million in the quarter, and we ended up by $214 million at the end of the quarter. 



Then we have the IFRS profit and loss account. I won't spend a whole lot of time on this. So I will just mention that also here, the one-off costs that the $16.4 million of one-off costs are, of course, charged to the IFRS P&L as well. On the personnel cost line, that amounted to $10.6 million, which is mostly related to severance packages in connection with the headcount reduction and then $5.8 million on the other operating cost line related mostly to onerous lease charges in relation to vacated office space as a result of the demerger. All in all, on the IFRS side, we then had net income of $37.5 million compared to $16.8 million in the same quarter of last year. 



And then if we look at the balance sheet, again, the IFRS balance sheet, and of course, there has been significant changes this quarter because it's the first quarter where we do include PGS. And for the IFRS numbers we're looking at here, that goes for the P&L as well. The comparables are not pro forma numbers. So they are as reported. So I'll not go through all the different items in the PPA. There is a note to the quarterly report that you can read.



But let me just point out a few interesting or a few significant developments. Of course, goodwill has increased by $176 million approximately as a result of the transaction. And then you see a significant increase, of course, on the multi-client library side, which now stands at $1.2 billion. That was -- and the PGS contribution to that increase is $426 million. In the PPA, we have increased the value of the PGS multi-client value by $102 million relative to what PGS had in their books at the end of Q2, which was $325 million.



And then on deferred taxes, we have increased that as a result of the PGS transaction by $160 million. So the PGS balance sheet contributes by $160 million there, and that obviously includes the conservative estimates of the tax value of the losses carried forward that we inherited from PGS. And then other noncurrent assets have increased significantly due to inclusion of the PGS streamer fleet, and we have included that at the same value as PGS had in their books, which was approximately $750 million. 



And then finally, on the debt side, you should note that we have written up the debt. We have done a mark-to-market on the bond loan. So we have added $60 million through the PPA on the debt side. But that's not the obligation, the repayment obligation. So that may be a bit confusing. So the repayment obligation is still the nominal value of that debt. But bear in mind, if we are going to use the call option in March at $106.75 million, the markup of $60 million in the PPA is in reality around $30 million. But in the balance sheet, we reflect a markup of $60 million in the PPA. 



And then as Kristian also talked a little bit about, we have seen substantial upgrades of the credit rating. So we're very happy to see that both the credit rating agencies, S&P and Moody's has done substantial upgrades, S&P by 3 notches, Moody's by 2 notches, which means that they are both more or less aligned now in terms of the way they look at the credit risk in TGS. So we have a BB- with a stable outlook in S&P and Ba3 with a stable outlook in Moody's. And those ratings are, of course, comparable.



And this is extremely important and to get in place before we go out and refinance the debt that we inherited from PGS. And our intention is to do that in the short to medium term in order to realize the quite material synergies that we will see on the interest rate side. Our target net debt level, as we communicated on the Capital Markets Day is $250 million to $350 million, and we are above that now. It was $425 million, excluding lease liabilities at the end of Q3.



And then finally, we continue to pay a dividend in line with the financial policy that we outlined on the Capital Markets Day. So once again, the Board has resolved to pay a dividend of $0.14, which translates into SEK 1.53 this quarter, the ex-date is set to 31st of October, and the payment date is at 14th of November. We see significant upside to the shareholder distribution in the medium to longer term, but we want to get into that communicated net debt band or range before we start increasing distribution to shareholders. 



So by that, I leave the word back to you, Kristian, for the outlook section.

[Kristian Johansen, executive]

Thank you, Sven. And let's start with the elephant in the room, which is the oil price and all the macro uncertainty, geopolitical tension, and obviously, oil price volatility. I think if you look on the left-hand side here, you see the oil price over the last 10 years. And I think the key message here is that, yes, the oil price has been extremely volatile and it's come down from a very high level back in May 2022. But at the same time, it's a relatively healthy oil price and shouldn't cause too many concerns among our customers.



Keep in mind, energy companies tend not to make material changes to their investment plans based on short-term price fluctuations. So in other words, they don't change their budgets every day. Saying that, obviously, it could impact the discretionary part of spending. But as you will see on the next slide, I mean, we've managed to change the business model of TGS also in the matter of the past 2 or 3 years. So we're probably less exposed as a percentage of revenues to our pure discretionary part of budgets.



The current oil price is also well above energy companies' breakeven levels. You see that. This is a graph from SpareBank 1 that left lower corner of the slide. And as I said initially, TGS revenues have exposure through the E&P project cycle. So in other words, we are less exposed to discretionary spending than we were about 12 months ago. 



This slide illustrates that quite well. So what it basically says, if you start on the right-hand side is that 30% of our revenues now and 30% expected going forward is tapping into production budgets rather than exploration budgets. And the reason for that is that a significant part of our OBN activity, in fact, 95% is pure production driven. And about 40% of our streamer business, as we speak, is tapping into production budgets in the form of 4D rather than exploration budgets and 3D.



And the way it works is that we talk to completely different clients or people at the clients' offices in this regard. So while whenever we do a 4D survey, we would talk to asset managers, and we would not even touch the exploration budgets. But on the left-hand side, which is 70% of our business, so pretty much all the multi-client that we're doing and also about 60% of streamer acquisition activity is still the traditional 3D and 2D, and that taps into exploration manager's budgets. And that part is obviously a bit more volatile in tough times as we see right now.



So I think this is an important slide in terms of a lot of you have the perception that TGS is purely exploration-focused and purely exploration-exposed. And not that we don't want to be exploration exposed because we think exploration will have to come up, and we think that there will sometime be a rebound in terms of exploration spending. But it's also good to have 30% exposure to the more sticky part of the value chain. And that part is the one that has performed best over the past 24 months for TGS. 



We talked about contract activity, and I said I'm quite comfortable with the contract backlog going into the winter season. And I think this one gives a good background to that. So these are the active streamer tenders that we've measured since January 2019, and you see a significant increase in streamer tenders since April. And the fact that we have a significant increase in streamer tenders doesn't mean that we necessarily get all the contracts. But I think some of the contract negotiations are at this stage where I feel very comfortable that the winter season is going to be good in terms of utilization and 2025 utilization is going to be far better than 2024. 



There are several opportunities expected to be concluded over the coming months. And then you may ask the question, why don't you have it signed? And typically, what happens is that a lot of this work will happen over existing TGS permits. And sometimes there's a lot of bureaucracy in terms of having a third party acquire data over a permit held by a multi-client company, et cetera. But despite the fact that things have dragged out slightly longer than we expected, we see a very healthy tender activity, and we think TGS is well-positioned to capture a significant part of that. 



Just look at the volumes there, we're talking about $600 million or $800 million of tenders. And for a lot of these jobs, there are only 2 companies who can compete. And if we could get half of it, obviously, it would be a great backlog for TGS. So we're crossing fingers, and we're working hard and get up early every morning and try to get some of this closed over the next few weeks or months. 



And going back to the backlog and inflow. So you see the order inflow this quarter was about $423 million, and then you see the total backlog is around $750 million measured as POC at the end of Q3. The IFRS backlog is above $1.3 billion. And if you look at the expected timing of this contract backlog measured as POC, you see quite a significant part of that will be recognized in Q4. And then we expect to increase the backlog going into Q1 and make sure that next time we show you the same pie, you will see that we're well covered also for Q1 and Q2. 



In terms of expectations for Q4, we expect to have a normalized OBN crew count of about $3.5 million. That's pretty much as high as it gets between $3.5 million and $3.8 million is basically sold out, and there are some logistical challenges in terms of you would never get to $4 million when we have $4 million crews. On the streamer 3D fleet utilization, we expect around 70%. That's lower than it was in Q3. Part of the reason for that is, number one, seasonal, but the second one is that we actually have a yard stay and classification that we need to do every 7.5 years for one of our vessels. So sheet's going to be at the yard pretty much the whole quarter of Q4. But going into 2025, I think we have all our 6 streamer vessels for seismic use, hopefully fully occupied and on well-paying jobs. 



So in summary, we have a good -- we're off to a good start post-merger. We had a strong Q3 financial results. Synergies are ahead of targets. And as Sven alluded to, we have solid credit rating upgrades, which obviously, bodes well for the upcoming refinancing that we are planning for these days. Oil price volatility remains high, but it's still significantly above breakeven levels. OBN market remains strong with high exposure to production budgets. As I said, about 95% of our revenues generated in OBN right now is from production budgets rather than exploration. And then improving streamer utilization expected for 2025. 



So with that, I would thank you all for your attention today. We will open up for questions. Bard is going to run the Q&A session, and Sven Børre will come up here with me and respond to your questions. Thank you very much.

[BÃ¥rd Stenberg, executive]

Thank you, Kristian. We have quite an audience in Oslo, so I suggest that we start with any questions that the people in the audience in Oslo may have. Yes, Christopher?

[Christopher Møllerløkken, analyst]

I'm Christopher from Sparebank 1. 4 questions. I'll start with the easy one. You said Q3 had been positively impacted by material transfer fees. Is it possible to disclose the size of those fees?

[Kristian Johansen, executive]

Yes, it's a very easy question. And the answer is no. And the reason for that is that we have confidentiality agreements in place with the clients. And we cannot even say who the client is, although I'm sure you can guess that, but we're not allowed to even give you an indication of how big those transfer fees were.

[Christopher Møllerløkken, analyst]

No trouble. And then regarding the fourth quarter, assuming Chevron still can't close Hess, is it fair to assume that the fourth quarter will be a normal multi-client quarter with no transfer fees expected at this stage?

[Kristian Johansen, executive]

Yes, we don't expect to see big transfer fees in Q4. But I think for the full year, I mean, this is very lumpy. You never know when these transfer fees are going to happen, and we had a material one in Q3. And for the full year, I mean, it's sort of normal. You always have a big one. This one is -- '24 is probably going to be greater than '23 in terms of transfer fee, but '22 was even better than '24. So I mean, we call it nonrecurring or you guys call it nonrecurring, but it happens to occur every year, but it doesn't happen every quarter for sure.

[Christopher Møllerløkken, analyst]

A more interesting question, the third one. You're now in the budgeting season for next year. What are your clients telling you regarding their seismic spending plans for next year?

[Kristian Johansen, executive]

Pretty similar to what you guys would be saying that you expect some single-digit growth. I've seen the number of between 0 and 5, and that's probably what clients would tell us, too. It varies quite a bit though. I mean the data budgets are a very, very low part of total E&P. So even if they say 4% on E&P spending. It could still be 30% for data, right? So it all depends on the drilling plans and are they going to drill fewer wells next year, then there may be more money for seismic. I think overall, I mean, it varies a lot. An average figure is probably pretty close to what you're expecting, I guess.

[Christopher Møllerløkken, analyst]

And final question. With regards to the increase you see in the active stream tenders, are there any regions standing out?

[Kristian Johansen, executive]

No. I think what we've seen is a couple of clients who want to do what they call capacity contracts. So they want to contract with one particular vendor for bigger programs that could actually be all over the world. I think overall, you see the bulk of the activity in the South Atlantic region, which is Latin America, South America, Africa, or the West Coast of Africa. A lot of the streamer activity will take place in that region.

[BÃ¥rd Stenberg, executive]

Erik?

[Erik Fossa, analyst]

Yes, Erik Aspen Fossa, Carnegie. We had a large oil service company talking and highlighting that oil companies now where -- because of the oil price dropping a bit more cautious on discretionary spending. I'm wondering how you think about that and also how you think that's going to affect the potential for the budget flush in Q4, especially regarding the fact that we didn't see it last year.

[Kristian Johansen, executive]

Yes, it's something we monitor very closely. I mean, obviously, we had a good Q3, but now we're well into Q4. And typically, this is the time of the quarter where we don't really have a lot of sales anyway, but we have a lot of discussions with our clients, and then we typically close towards the latter part of Q4. And by that time, who knows where the oil price is going to be? But I think it's a fair comment to make. I mean, discretionary spending, typically, you would switch that down or switch that off if there are more uncertainties. So we're prepared for that, but we haven't seen any strong signals yet in that regard.

[Erik Fossa, analyst]

And on the streamer fleet, you said that you expect utilization to come up. I'm wondering if that is -- maybe it's a mix. Is it the market you expect to improve? Or is it more like operationally because there have been some challenges now, delays on projects? So it's a normalization or market improvement?

[Kristian Johansen, executive]

Yes, I think it's a little bit of a catch-up effect in terms of things that have dragged out. And I was listening myself to PGS a couple of quarters ago when they pointed to a lot of the same data that things were getting better. But the truth is that it's continued to develop and it continued to develop towards final signatures, and that's very positive. Is that the market? Or is it just that things have gotten so delayed that everything happens at the same time? I mean it may be a combination. But I think it's fair to say that there are basically 2 players left in that game and some of the clients are in a bit of a hurry to lock up some capacity, and I think we're well positioned to get our fair share of that.

[Erik Fossa, analyst]

One last quick question. One [indiscernible]. What do you expect to use that for like, let's say, next year and 2026? Is it going to be offshore wind or it's a mix or?

[Kristian Johansen, executive]

It's probably going to be a mix. And what we tell our internal teams is that whoever is willing to pay the highest price for the vessel and whoever has a job in a white space would be welcome to use it. But we try to have as much flexibility as we can in terms of our vessels. And it's not like we allocate one for wind and then you only have 50% utilization. We really try to balance that and maximize the utilization over time. So that vessel is a great example.

[BÃ¥rd Stenberg, executive]

I think Jorgen you're next?

[Jørgen Lande, analyst]

Jorgen from Danske. Just on OBN, activity seems to be high and also linked to a more interesting, let's say, more robust part of the spending cycle. How easy is it for you to kind of increase that 30% today to more 50%? And how do you think on that?

[Kristian Johansen, executive]

It's a very different market to the streamer market because you have -- in the streamer market, you basically have 2 players. And here, you have 4 or 5 players, and you have some players who are trying to break into that market. So there's probably more temporary pricing pressure in the OBN space. So we haven't been able to raise our margin by charging higher prices from the clients. The reason why we have good margins is that we've been really good at taking out synergies from the Magseis acquisition, and we've had really good operational performance on our crews. So that's pretty much where it is today. Obviously, we hope to be in a situation where we increase prices over time. But right now, I think they're pretty steady.

[BÃ¥rd Stenberg, executive]

Okay. Lukas, I think, you're next.

[Morten Nystrøm, analyst]

Morten from Arctic. Following up on that, I mean, $3.5 million, $3.8 million crews in operation, you said that's kind of the maximum. So would you be entertaining the idea of adding one more crew?

[Kristian Johansen, executive]

It's something we consider from time to time. But I think right now, the focus is on operational efficiency, making sure we can get the best possible margins out of the $4 million crews that we have. And then there will be a time where we may consider adding a fifth, but it all depends on the market development. But we don't want to destroy this market as many people have done before us.

[Morten Nystrøm, analyst]

But is that something that you have readily available? Or how would that happen?

[Kristian Johansen, executive]

That can quite easily be done. I mean we have manufacturing agreements with third party. There are nodes out there that we could lease or buy. But right now, that's not on top of the agenda.

[Sven Larsen, executive]

Although we've seen a significant margin improvement over the past couple of years in the OBN business, we think it should be higher. We think it's a business that should have an even higher margin than what we're seeing today. And as Kristian said, we will be careful with the capacity until capacity increases until we get there.

[Morten Nystrøm, analyst]

Okay. And some of your MC investments are sliding into 2025 on timing issues. But do you have some sort of high-level preliminary thoughts on the vessel allocation and your MC investment level going forward?

[Kristian Johansen, executive]

Yes. I think it all depends some of these contracts that we are in the final stages of closing now, they may be multi-client or what we call converted contracts. So it all depends on how we structure that, whether it's going to be a pure contract with a third party or whether we're going to do it a multi-client way.



So I think overall, I think I said it a few minutes ago, we actually have -- our multi-client teams are a bit concerned that they may not have availability, which is a great situation to be in. So as a result of that, we're probably going to keep the optionality we have with Carlsen and the ability to use Carlsen for some of the multi-client work. We're going to use that in Q4, and we may use that also in 2025. We have a capacity agreement with them.



I think overall, in terms of the investment level, it all depends on how we see the market. I think right now, the best guess would be that it's somewhat similar to what we do this year. It all depends on how the market develops over the next few months and how much capacity we have.

[Morten Nystrøm, analyst]

And did you utilize some of the tax assets during Q3?

[Sven Larsen, executive]

No.

[BÃ¥rd Stenberg, executive]

Christopher, do you have a question?

[Christopher Møllerløkken, analyst]

Yes. Just a quick final question. You notched down the multi-client investment guidance for this year. Would you say it's mainly due to waiting for permits or waiting for prefunded clients to sign up or none of the above?

[Kristian Johansen, executive]

It's a mix. Yes, it has to do with permitting. There is no secret that we had a program lined up in Australia that is not going to happen because of permitting issues. There is a partnership we have where we're still negotiating and where the decision is still to be made, whether we're going to participate, and it all depends on the prefunding situation and stuff like that. And a lot is in our ball court right now, and you may see a decision on some of that over the next few weeks.

[Christopher Møllerløkken, analyst]

Just a follow-up on the vessel side and also the allocation between contract and multi-client. What's the, let's say, market potential and rationale for you guys to charter in a vessel costing, I guess, in a range $300,000 to $400,000 per day relative to your own internal cost at roughly $210,000, $220,000 depending. What's the rationale? Kind of what's the market demand for allowing you to do so also in the current market?

[Kristian Johansen, executive]

Yes, it's a balancing act. I mean what I'm saying is that I expect and we already see some signs of being fully booked at some parts of 2025. It doesn't mean that we're fully booked throughout the season, but there are certain parts of the year where we've already told our clients that we have no capacity. And that also goes with multi-client. And if we have a good multi-client program and we're sold out on the vessel side, then of course, we would look into using third-party vessels for that.

[Christopher Møllerløkken, analyst]

And you will also get the prefunding right for that because obviously, that...

[Kristian Johansen, executive]

Yes.

[BÃ¥rd Stenberg, executive]

Very good. We also have a couple of questions from the people on the web, Mick Pickup in Barclays. How do you -- let me see. It appears that the integration has gone well, but it's perhaps been tougher than anticipated. What challenges remain to deliver the synergy number for the full year or the run rate for the full year and 2025?

[Kristian Johansen, executive]

Yes. I think a lot has been done on the people's side. And obviously, that's the toughest process for all of us, whether you're a manager or whether you're an employee who's impacted by that. More than 300 people have left the company over the past month or so. So obviously, that part is now behind us. And that's a good feeling for managers and employees.



I think what remains to be done in 2025 is mainly related to systems, systems where we integrate 2 different ERP systems, 2 different sales force systems, et cetera. So I think that's where you're going to see it takes a bit longer to take out those synergies. But overall, we're ahead of our plan. Yes, it's been tough, but it's our job. And we made promises in terms of our synergies, and we're going to deliver on those promises.

[BÃ¥rd Stenberg, executive]

Very good. Mick also has another question regarding vessel utilization. You said all your 6 streamer vessels will be occupied in 2025. Can I confirm that this means 85% utilization?

[Kristian Johansen, executive]

No, I'm not going to say that. There are still white spaces in our schedule for 2025. But right now, we're trying to juggle all the different possible contracts we can get and try to find the optimal balance of that. And you know how this is, and this is where seismic is different from drilling, for example, is that the contracts are rather short. So even though you have a backlog that is pretty good and pretty full, you will still have some of these white spaces in between contracts, and now we're really trying to maneuver that as best as possible.



So I definitely didn't promise 85% utilization for the year. But what I indicated is that right now, it looks like utilization will be significantly higher than it was in 2024. And again, the number from '24 was not that impressive, but we see now for the first time in years, and I talked to some people from the bid team yesterday, and they said they haven't seen this type of activity level in many, many years.

[BÃ¥rd Stenberg, executive]

Very good. One last question from the people on the web. That's to you, Sven Børre. How far progressed are you with the refinancing process? And can you give an indication of the interest rate that you expect from the refinancing?

[Sven Larsen, executive]

Yes, we are preparing ourselves to do the refinancing. But when we execute on that will depend on a number of factors, including the market conditions. So it will -- as we indicated, we said short to medium term. What does that mean? It means that we can choose to do it already this year if we see that as a good window of opportunity, but we're happy to do it next year as well if we feel that that's better. So it depends a lot on what we see in the marketplace at each and every point in time. And with respect to the synergy, you saw the ratings that we have now, and that should be helpful in giving an indication of where we should be at least.

[Kristian Johansen, executive]

Yes. We have reached the hour. So thank you all for coming, and thank you all for logging into the webcast and following us. If you have more questions, I will be available to respond to them. So thank you all for your attention.