TGS ASA

OSE:TGS

Earnings Call Transcript 2017-Q4

[Kristian Kuvaas Johansen]

Good morning, and welcome to the TGS Q4 2017 Earnings Release. My name is Kristian Johansen, I'm the CEO of TGS. And with me today is Sven Børre Larsen, our CFO.Let me first start by drawing your attention to the forward-looking statements before we move on to the highlights of 2017. TGS had a great 2017 and a good end of the year with a strong Q4. If you look at our revenues for the full year, we had $492 million for 2017, that's up 8% from last year, and it's about 13% higher than consensus at the start of the year. So we managed to beat our own expectations for the year. We managed to beat the market expectations and unlike most other companies in our sector, actually, our earnings has been revised upwards during the year, which we are very pleased about.Free cash flow was particularly strong, very strong in Q4 and strong for the full year. We had $123 million in free cash flow and that means that we are confident to increase our dividends to -- by 33% to a level of $0.8 per share. We have an industry-leading cash conversion rate of 22%, which means that for every $1, we have revenues, we have 22% of that go straight to the bottom line and a significant part of that again goes to our shareholders in terms of dividend. We also had a strong return on average capital employed in a market like this where we have 10%, and that ranks second highest when we compare TGS to the oil service companies in the Philadelphia Oil Service Sector Index.So we are very pleased about 2017. It continues to be a very challenging market, although there are some lights in the end of the tunnel. But if we go back to 2000 -- or Q4 of 2017, you'll see that our revenues were $157 million, driven by very strong late sales. If you look at our late sales, it was $143 million for Q4. That is actually down by $2 million from Q4 of last year. But Q4 last year was exceptionally strong, and I had to say, I'm very pleased about our late sales in Q4. We had lower investments in Q4 so that means that our pre-funding revenues came down to a level of about $11 million. That's down from $17 million in the same quarter of last year. We had 41% pre-funding. And as you see our total multi-client investments were only $28 million in Q4, and that's down quite significantly from last year. In addition to that, we had $10 million in what we call risks-sharing arrangements.Operating profit for the quarter was $52 million. That's up 23% compared to Q4 of last year, and it really shows and proves the leverage of our business model, where based on the new accounting policies and amortization policies that were introduced in early 2016, amortization is very much looked upon as a fixed cost, which means that when you reach a certain revenue level, you will see a significant impact from the bottom line when you pass that. And that's what we saw in Q4 when we had stronger revenues than previous quarters. A lot of that goes to the bottom line, and you see a very strong EBIT and EBIT margin.Cash flow. I mentioned cash flow for the year was $123 million, which we are obviously very pleased about. We had a cash flow in Q4 of $56 million, and that compares to $33 million in Q4 of 2016. And that means that we have a cash balance at the end of the year of about $250 million. In addition to that, we have $75 million of RCF. And keep in mind that Q1 is usually a very strong cash flow quarter, given that we collect a lot of what we sold in Q4. So our cash balance continues to be very strong and that's part of the reason for the 33% increase in dividend that we announced this morning.Again, quarterly dividend increased to $0.20 per share, so $0.80 for the year if we can keep it stable for the full year. And it's fair to say that we have improved visibility for 2018. We have a backlog that has increased in Q4 to $82 million and it continues to increase after the quarter was over based on the announcement, as you've seen mainly in U.S. onshore over the past few weeks. Our backlog is up 29% compared to Q3, and it's also up quite significantly compared to the same quarter of last year. We see a ramp-up in our U.S. onshore activity where we have announced 4 new projects this year and we announced 1 as late as yesterday, so we are quite optimistic about that market. And we saw a pickup in demand from our clients in Q4, and we think with the production increase and the activity level increase in the Permian, especially, but also SCOOP and STACK, we'll see some increased interest for our onshore data library.Just going to touch on the operational highlights very quickly. So this is the activity that we saw in Q4 last year. So you'll see Atlantic Explorer, which is a 2D vessel that we used in Canada; and then 3D vessels, and this is all in the partnership with PGS that we have been active, shooting seismic now for the 7th consecutive year in Canada. That program basically finished early October because, obviously, Canada has very rough seas, in terms of weather, and you can only shoot for 5 to 6 months per year.Then in onshore, we had a crew in Canada in Q4, and in addition to that, we had 2 crews in the Permian, 1 is still working in the Permian and then we had 1 crew in SCOOP and STACK, which is a very important focus area for TGS. We had a Coring crew in the U.S. Gulf of Mexico in a project called Otos; and then we had 2 vessels in the eastern hemisphere, Polar Duchess, working in the Atlantic Margin, and then Polar Marquis, working in the Porcupine Basin in Ireland.I'll touch on some of our projects that we have been working on in Q4, and then I will come back to the outlook for what we're going to do in '18. In the U.S. Gulf of Mexico, we have been very busy throughout 2017 with reimaging our Fusion program. This is a big program that we're doing together with Schlumberger. It's basically taking all the existing data that we have in -- mainly in Mississippi Canyon and we're reprocessing that in one of TGS' processing centers using the latest and greatest processing technology. This project is about 85% complete by the end of Q4, and we're going to deliver the data by mid-2018. And we have the multibeam and seep study. As you know, we completed our multibeam acquisition in early Q2. In Q4, we have been busy with some of the geochemistry analysis that's completed in Q4.Now we have East Canada. I was briefly touching on East Canada. As you see, we had 3 3D vessels shooting 4 different surveys in 2017, and we expect to be back in 2018 to continue to grow our data library in Canada, and this is in a JV with PGS.In Europe, we have -- we're about -- we've done about 32,500 kilometers -- or square kilometers of the Atlantic Margin, which means that we will come back this summer to complete the survey with an additional 7,500. So that's going to be part of our vessel activity in Europe for the summer. And then Crean in Ireland is we've finished the acquisition in October 2017, and the project is now being processed in our imaging center in Bedford.Coming back to North America land. As I said, we've seen a pickup in demand in the onshore market in the U.S. So Q4 2017 was our best quarter in terms of late sales ever, and we finally start to see some good results of investments that we started back in 2011, made the acquisition of Arcis in Canada in 2012, and again, Q4 was a very strong quarter in U.S. onshore and we expect this to continue into 2018. And obviously, with the increased activity level that you've seen in the Permian right now, that's probably the biggest risk factor in terms of the oil price for TGS. It's a great hedge factor in terms of being exposed to both onshore and offshore in a market where there is some uncertainty in terms of demand and oil price outlook.Just going through some of the surveys that we did in Q4. So we had 2 projects in the Permian. We had West Kermit, which is say 3D in the Delaware basin and then we had West Lindsey, which is another project southwest of West Kermit. This project -- West Kermit is a big project. It's about 1,050 square kilometers and West Lindsey is about half the size. And you've seen them on the map in the upper right corner of the slide. Then we are -- and we have been active in SCOOP and STACK in Oklahoma. So we finished Geary, which is a 3D that the acquisition completed in Q4 last year. It's in the processing phase right now and will be delivered to clients in 2018.In Canada, we continue to be active in the Duvernay basin, where we did the Grayling 3D. It's a relatively small 3D that we shot in Q4. And again, this acquisition has completed and it's now in the processing phase and ready to be presented to clients in the summer of 2018. And in addition to that, we have the world's largest data library in well logs. And if you just look at the map here and you see our exposure, we have the industry largest digital well log data. But that's also complemented by directional surveys, validated well headers, production data and multiple interpretive products. So in total, I think our onshore offering is now, if not the strongest in the industry, certainly up there as a Tier 1 player in the U.S. onshore market, with particular focus on Permian and SCOOP and STACK, which are 2 of the hottest areas right now. With that, I want to hand it over to Sven Børre Larsen, who's going to go through the financials, and then I will come back and talk about the outlook.

[Sven Børre Larsen, Chief Financial Officer]

Thank you very much, Kristian, and good morning, everyone. I will, as always, start with the net revenues slide, Slide #12. And I will start with late sales in the upper left-hand corner. As normal, we got a boost in late sales in Q4, $143 million, which is up 83% compared to the third quarter of 2017, and it's more or less in line or only slightly down compared to the Q4 of 2016. Then focusing on prefunding revenues on the upper right-hand chart. One of the impacts we have seen from this downturn is that the seasonal pattern in data acquisition has strengthened considerably. So we see a lot of activity still in Q2 and Q3, the summer half of the year, whereas we see a very limited activity now in the winter half of the year, Q4 and Q1. So in Q4, we invested $28 million in new surveys compared to $114 million in Q3. And this, of course, had an impact on our prefunding revenues, which were $11 million in Q4 compared to $62 million in Q3 and $17 million in Q4 of 2016.Then looking at proprietary revenues on the bottom left-hand chart. We had $1.9 million recognized in proprietary revenues in Q4 of 2017 compared to $1.3 million in Q3. We see some signs of improvement in the proprietary imaging market and we hope that we can be able to increase our proprietary revenues during 2018, although, of course, it will still be well below historical levels or the levels that we saw some years back.So all in all, this gave total net revenues of $157 million, which is a 5% decline compared to Q4 of 2016, and this is mainly a result of the lower investments and the lower corresponding prefunding revenues.Then looking at the breakdown on net revenues, starting by going through the split by technology. First, on the top left-hand side. 3D accounted for 74% of our revenues in Q4 of 2017, 2D accounted for 19%, and geological products and services accounted for 7%. Then looking at the geographical split or the regional split on the bottom of the slide. In Q4, NSA, North and South America, accounted for 66% of our net revenues. This was due to a quite decent quarter in U.S. Gulf of Mexico, of course, but also, as Kristian alluded to, a strong quarter in our land business, which is mostly related to North America, Canada and the U.S. Europe accounted for 14%. Africa, Middle East, Asia Pacific, 12%, which means that we actually had a pretty strong quarter in these regions. And other businesses accounted for 8%.We're now on Slide 14. Looking at the operating expenses first, $25 million of operating expenses is a 2% increase compared to Q4 of 2016. This is entirely down to the bonuses that we paid to our employees -- we had an increased bonus level in Q4. Bear in mind that our bonuses are linked on a quarterly basis to the operating results, so when we increase the operating results, we pay more bonuses. Excluding these bonuses, the cost level was actually down 80%, demonstrating that we are continuing the show strong cost control. Then to the amortization on the upper right-hand chart, $77 million of amortization in Q4 is a significant decline, of course, compared to Q3 due to the lower investments that we had in the quarter. Bear in mind that revenues related to new investments are still being amortized on a sales base -- according to the sales, whereas completed surveys are being amortized on a straight-line basis. For 2018, we guide for around $310 million of amortization for the full year. Then to the bottom left-hand chart, operating profit. We had $53 million of operating profit in Q4, which is up from $45 million in Q4 of 2016, which meant that we had a margin of 33% compared to 27% in the same quarter of 2016.Free cash flow on the bottom right-hand chart, $56 million, strong cash flow, and I'm going to touch upon that in more detail later in the presentation.Then looking at our multi-client library in more details. First, investments in the upper left-hand chart. We invested $28 million in our multiclient library in the quarter, excluding investments linked to risk-sharing arrangements. This was prefunded 41% by our clients. For the full year of 2017, we had $260 million of investments and a prefunding rate of 44%. The guidance for 2018 is for investments, excluding again these risk-sharing arrangements, so around $260 million, with a prefunding rate in the range of 45% to 50%.Then looking at the net book value development of the library. It continues to decline as we are amortizing more than we are investing with the current low vessel day rates that we see. So the $799 million of net book value at year-end is actually the first time we're below $800 million since 2013. And with the -- implied by our guidance for 2018, you should expect this to also decline further during 2018.Then looking at investments or the library, net book value of the library distributed by the year of completion of the different surveys on the bottom left-hand chart. The bars, as always, shows historical costs and the diamonds represents where the current -- where the net book value currently sits. You should note that WIP, the work-in-progress balance is significantly down during Q4, and this is related to the fact that we have completed, now processing, of the Gigante 2D survey in Mexico and also that the Declaration 3D survey in the U.S. Gulf of Mexico. Generally speaking, we continue to regard the impairment risk as low given the high cash return on our library, but as we always stress, there is always a risk related to individual surveys and that we may have to take smaller impairments related to that. But we see the risk of these larger library-wide impairments as pretty low for the time being. Then on the bottom right-hand chart, we show net revenues distributed by the year of completion of the different surveys. What is interesting to note in this quarter is that older surveys have sold pretty well, 27% of our net revenue. Net revenues came from vintages that were completed prior to 2014. And this demonstrates the long commercial life of our library that we are continuing to sell these surveys long after they have been fully amortized. Apart from that, this picture is fairly normal.The Q4 income statement. Net revenues, $157 million compared to $165 million in Q4 of 2016. Subtracting the operational expenses that we have already talked about, we ended up in an operating profit of $52 million in the quarter compared to $42 million in 2016, the fourth quarter of 2016. Profit before taxes, $53 million versus $39 million in '16. You will see that the tax costs in Q4 was positive by $2 million and this has mainly to do with the changes in the U.S. corporate taxation. So we have basically recalculated the deferred tax liability balance in the U.S., applying a 21% tax rate instead of a 35% tax rate, which means that we have a kind of a one-off gain recognized in Q4 on the tax side. This means that we had an effective tax rate in 2017 of 24%, and going forward, given the changes we've seen both in the Norwegian taxation and in the U.S. taxation, we regard a tax rate of around 23%, 24% to be normal when we exclude an impact from currency movements.So after taxes, net income were $55 million in the fourth quarter of 2017 compared to $26 million in the same quarter of '16. And this gave an EPS of USD 0.54 for the year. So as you can see, a significant improvement of our net results and EPS year-on-year.Then looking at our cash flow statement for Q4. Operational cash flow of $137 million is a very strong result. We are very happy with -- to see that we have this ability to generate strong operating cash flow. Investments, cash investments in the multiclient library of $81 million are pretty high in the quarter, so we're basically paying off the vessel day rates or the vessel days that we used in the latter part of Q3. As we already discussed, we had a high booked investment in Q3 and we're paying parts of that in Q4. So therefore, the cash investment in the library is higher than the booked investment of $28 million. We also, as normal, paid a quarterly dividend, $15 million in cash outflow. And all in all, this led to a positive change in our cash balance, so $45 million during Q4.Then looking at our balance sheet, remains strong, of course, with this $45 million increase. We have a cash lever of $250 million as the end -- at the end of 2017. And as Kristian said, we are collecting a lot of the sales that we recognized in Q4. Now in Q1 -- and the cash level as we speak is even higher than these $250 million. And also the robustness of the balance sheet is strong with an equity ratio of 84% at year-end.Then looking at return on capital employed. 10.1% in 2017, which is not, of course, a very impressive result in itself compared to where we have been historically. So we're still very significantly below our historical averages. But when we compare ourselves to other oil services companies, we realized that we are actually one of very few large services companies that are able to produce a return that is higher than the cost of capital. And on the chart there, we have ranked ourselves compared to the companies that are included in the Philadelphia Oil Services Index. That is 15 companies in total, and we are ranking #2 on the return on capital employed in 2017.Then looking at our cash flow in more detail and our cash conversion rate. As you can see from the chart on the left-hand side, we have consistently been delivering strong cash conversion rates over the years, both in terms of conversion to operating cash flow, but not at least also to conversion to free cash flow. So this is defined as cash flow divided by net revenues and shows how much net revenues we are able to convert to cash. So in 2017, we are actually showing, respectively, 94% and 22% cash conversion on operating cash flow and free cash flow, which is actually, despite the weak market conditions, better than the long-term average that we have seen historically. So we are pretty happy with that result. And as you understand, we have a strong focus internally on cash generation, being careful with what we spend and being good at collecting what others owe us.On the top -- or on the right-hand side, there you'll see how we compare on this measure with some other oil services companies. Not many oil services companies have reported, thus far, so you see a selection of the larger ones that have already delivered 2017 results. And as you can see, we come out on top of that comparison.Then producing this strong cash flow is paying off for the shareholders, and I'm pleased to inform that the board now has resolved to increase the quarterly dividend to USD 0.20 per share from previously USD 0.15, so that's an increase of 33%. And the way we do it normally is that we announce a new dividend level in Q1 of every year and then we aim at keeping that dividend level stable throughout the year. We'll announce a new dividend level in Q1 next year and keep that stable for 2019. So this is basically what you should expect for the coming quarters as well. But as you see, we have a very robust cash balance, obviously no need for generating more or increasing that cash balance significantly further. So our aim is to pay out the whole free cash flow. So if we see during the year that the cash flow develops in a different manner, positively, negatively compared to where our forecast is now, the board, of course, reserves the right to change that dividend during the year. But as of now, this is what you should expect for the coming quarter, $0.20. And the dividend or the share will pay X -- trade X dividend on 15th of February. And dividend will be paid out to the shareholders on 1st of March.Then lastly, I want to talk a little bit about the potential impact of the IFRS 15 accounting rule. This new accounting rule comes into force from 1st of January, 2018, and it regards revenue from recognition of revenues from contracts with customers. So we have been working for a long time, evaluating the potential impact from this and there's also been a joint effort with the industry in order to try to come up with a common methodology to deal with this accounting standard. So on completed surveys, there will obviously be no impact. That will be -- revenues from those surveys will be recognized just as we do it today, i.e. as we sell and deliver those surveys to the customers. What remains unclear is what kind of implications this will have for revenues related to surveys that are in progress, that are not yet completed. And our view is that the current methodology using the percentage of completion method is by far superior method for showing or measuring value creation and performance of our business. And the rest of the industry seemed to agree with us on that one, so this joint effort from the industry has been focused on trying to establish a good way of continuing recognizing revenue the way we have done it or a way that will give almost the same kind of result in practical terms. Unfortunately, so far, we have not succeeded in reaching such a conclusion with our auditors, and there is a fairly high risk that we will have to implement a model where we do not recognize any revenues from new projects until the project is completed -- processing is completed, which means that you can see -- you may see that revenues on projects are not recognized until say, 12, 18 months, after we start acquiring the survey. So that will, of course, have a significant impact on how our accounts look. However, if that is the case, we will, of course, try to provide additional information in our financial reporting, so that we help users of the accounts to understand what is going on, understand the value creation and understand the performance of the business. And we hope to be able to conclude this matter within say, the next month or so, and we will send out a stock exchange notice as soon as we have reached a firm conclusion on this.So by that, I hand over back to you, Kristian.

[Kristian Kuvaas Johansen]

Thank you very much, Sven Børre. So let's have a look at the outlook and how the market has developed in 2017 and how it's going to be in 2018. So first of all, a substantial increase in the oil price since June of 2017. You see a point from early summer of '17 and until pretty much today where we've seen a very strong momentum in the oil price, and this is obviously part of the reason to an increased activity level in oil service in general. And the big question is, obviously, is this going to continue and how sustainable is the recent oil price increase? If you look at the latest report from EIA that came out on Tuesday night, you see that they don't believe it will continue. They actually believe that there is more downside than upside to the oil price right now, and that's also the basis for our guidance for 2018. If you look at the blue bars, it basically shows oversupply in the market and the red would be undersupply or a market where you produce more than you -- or produce less than you consume. So what you see is obviously the reason for the significant drop in the oil price in early 2016 is a significant buildup of inventories throughout 2015 and '16, and then you actually see that we have, or the industry has been drawing on inventories actually for 5 quarters in a row, if you include Q1 of 2018. And then EIA expect that the recent activity increase in U.S. onshore in unconventionals and particularly in Permian will have an impact on the overall production going into later or the latter part of 2018, which again has probably put some kind of a ceiling to the oil price and implying that there will be more downside than upside. Nobody obviously knows how this is going to turn out, but I'm just referring to this because this a basis for what we think is going to happen in 2018. And when we say we're going to invest $260 million in seismic for next year, this is a basis for that. We think that the market will probably be flattish based on the oil price with some downside risks. The good news is obviously that E&P companies are experiencing a significant improvement in cash flow. And if you look at the estimates from Capital IQ for 2017, you see that all companies actually making a better free cash flow now than they've ever done, all the way since 2011. So they're actually doing better than 2012, and we all know how the market was in 2012 at an oil price significantly higher than what it is today and a very high activity level in the industry but also very high cost base. We saw a record-high inflation throughout 2007 to 2014, and this is obviously what the oil companies are fighting very hard to avoid that to happen again.If you look at our cash flow breakeven price, you'll see that it's pretty much moved in line with Brent, so they'd be able to cut their cost base significantly. You read about this every day this paper. I just read a report from Total that came out this morning, with very strong figures as well, beating consensus significantly and implying that their cash flow breakeven has moved significantly down.If you look at that and you look at the improvement in terms of their cash flow, a lot of that is coming from the service industry. So an E&P or a Supermajor will typically have about 80% of their cost base from survey companies or external costs, and then 20% internal. So when they brag that they've been able to cut their cost base significantly, most of that gain is our pain, of course. And if you look at what they're going to do in 2018, and you just listen to what they say in the earnings calls, it's quite a consistent message to the industry that they will still keep their CapEx basically flat or even slightly down compared to 2017. And then there are obviously people who'll say, "Well, that's what they say, but they never able to realize that." And we've seen in previous upcycles that whenever the cash flow improves significantly there's just some kind of a time lag before you see an increase in CapEx as well. But if you see what they're saying, you'll see -- Shell is saying that '18 should -- you should expect to maintain -- or they expect to maintain their capital investment in the lower part of their range that they have guided for a 3-year period. You'll see Statoil who's actually saying that they will increase their exploration CapEx to $1.5 billion from $1.3 billion last year. But keep in mind that they're going to drill 40 wells, so most of that -- or all that growth is obviously coming from drilling rather than seismic. Total is saying that they will pretty much keep their spending level flat, but that includes the acquisition of Maersk, which means that on a compare -- year-on-year comparison, organic comparison, it's actually quite significantly down for Total. ExxonMobil is actually saying that they will spend more in CapEx in 2018, but they're also saying that, that growth will come pretty much entirely from the Permian and unconventionals in the U.S. That's very much the same message as you hear from Chevron, a lot of focus now on the Permian. And you see that BP is actually reducing from a level of $16.5 billion to a level between $15 billion and $16 billion. So all together, a relatively negative message from our clients. And then you can also -- or you can speculate whether they're able to achieve this, and I don't want to go into that the speculation right now. I would rather look at other companies and the Supermajors and how is that going to play out for 2018. And I think that's probably the key upside. If you look at what we can achieve in 2018, I think there is a fair reason that we should listen to the Supermajors, what they plan to do. We shouldn't speculate that they're not able to do it. But I think in terms of the small independents, I think there is some upside, because we've seen over the past few months smaller independents that we've hardly heard from them over the past 2 or 3 years. They start to become more active now. And I think that first proof of that whether that's true is a license round that's going to happen in the U.S. GOM in March 2018 where typically you've seen 80, 85 companies bidding in that license round. That number has dropped significantly down to a number of low 20s in the past 2 years, and then obviously what the industry's hoping for now is that you will see some of the smaller independents move back in. And I think we've seen some early signs of that. We had a Q4 where we saw a couple of new clients that we haven't seen in a few years. And we hope that, that trend is going to continue and obviously helped by the oil price.In terms of the backlog, it's up. It's up from $63 million in Q3 to $82 million, and it's also significantly higher than it was in Q4 of 2016 when it was only $51 million. And the good news is obviously it's continued to strengthen since this. So ever -- since we reported this -- or calculated this on the 31st of December, we actually have 4 new projects announced in sand, which obviously adds to the backlog. And since these projects are onshore Permian or SCOOP and STACK, we typically -- they typically carry quite decent prefunding, so you should expect to see -- if we were reporting that same number today, I can promise it will be significantly higher.In terms of the new projects that we announced this week. One is a large project in the SCOOP and STACK, again in Oklahoma. It's called Canton. Canton is 1,170 square kilometers high resolution 3D multiclient project in the Anadarko Basin. It's certainly strengthens our leading position in the SCOOP and STACK play. You can see from the map on the upper right-hand corner that we start to get quite a compressive grade update now in Oklahoma SCOOP and STACK. Acquisition of this project will commence in Q2 of 2018 and we plan to deliver our final data to clients in Q1 of next year. And then we are also very pleased to announce that we have signed an agreement with CNH in Mexico to get access to up to 30,000 well logs that we can digitize and produce in our processing centers in Houston and India and that we can deliver this to clients, partly as a subscription-based service from our GPS well log business. So we are very pleased about that. We've seen that our sales have kind of flattened out in our GPS well log business because we don't have any more wells to sell. And what we really need now is we need new countries to open up, and Mexico is a great example where we finally got access to that and we see a great potential going forward and we can turn that trend in terms of negative sales growth in our GPS business.Looking at the project schedule for 2018. It looks rather thin right now if you're -- onshore is very strong obviously with a significantly higher commitment so far than we had at that same time last year. Offshore looks thin, you don't -- you see we have the Polarcus Asima that is going to shoot Alonso in the U.S. GOM. And they've just started that project. And then you have -- Asima is going to move from U.S. GOM to Norway and then complete 7,500 square that is still remaining on the Atlantic Margin. But you should be aware that there is obviously more to come. First of all, Canada. I've already commented on Canada. I would be very disappointed if we don't have 2 3D vessels in Canada. This is the reason why we don't announce it as we haven't decided what vessel to use, what is the timing of the acquisition and which projects are we going to acquire. But you all know that we still have some surveys to complete from last year. We didn't finish all the surveys from last year. So there will be vessel activity in Canada, I can guarantee you that. There will be more 2D activity. We are already looking at some 2D projects that will be added to the list, hopefully next quarter or the quarter after that. And there are regions where TGS is looking very actively right now. We are obviously dependent on a relatively high level of prefunding in today's market. But I feel very confident about the project schedule and our plans for 2018. And when we look at our total guidance of $260 million, I look at what we have committed or are soon to be committed. I think we feel very good about this picture.And if you look at the license round activity for next year and our positioning related to the license rounds, I'm just going to go through it very quickly. Again, I mentioned that the U.S. GOM sale in March is going to be very exciting for the industry. Personally, I really hope that this is going to be kind of the point where you see a positive trend starting to build up again in the U.S. GOM. That's the indication we're getting from some of the smaller clients. Whether they are willing and able to start bidding already in March, it remains to be seen, but the good news is that we also have a round in August where you can bid for Mississippi Canyon data.In addition to that, you have Canada, which obviously goes according to plan with the license round in November of 2018. You have Canada onshore, which continues their monthly license rounds. And then you have 2 big license rounds or 2 big areas. You have both Brazil and Mexico. Brazil is -- obviously, if you look at the activity level in Brazil and the fact that there will be a -- the 15th round in March of 2018, this is part of the explanation to some of our peers who had good numbers in Q4. Brazil has been very, very hot for the whole industry. Unfortunately, we don't have much data in Brazil, but you cannot really be everywhere. Do we have a plan for Brazil? Absolutely. We've hired new people, both locally in Brazil and also people who's going to work Brazil out of Houston. So we are hopeful that TGS will build up a presence or more presence in Brazil because we strongly believe in that market going forward. And then Mexico, we are -- Mexico is moving on with more license rounds. There's going to be a deepwater round, there's going to be a shallow water round and also an onshore round in 2018, and TGS is obviously very active here now with the recent addition of the well logs and obviously the 200,000 kilometers of 2D data that we already have in Mexico. We always get a lot of questions, are we planning to shoot 3D in Mexico? Well, what I can say is that it's public knowledge that we have applied for a couple of permits in Mexico. Again, it's all related to prefunding, how much interest do we see from clients and what is the right timing to get it started.Africa, Middle East, Asia Pacific, I'll move very quickly through that. I think the good news here is that we will have a license round in Sierra Leone in 2018 and we haven't seen that in many years. TGS has a big library in Sierra Leone, so we are quite optimistic in that regard. And then Norway we have the APA, which is announcement expected in Q2 of 2018, in addition to the 24th round where you will have awards hopefully before the summer of 2018. Typically, it happens just before the holidays, sometime in late June. U.K. will have a round in the first half of '18, and that kind of summarizes the activity level. And the big question is obviously so how does this compare to previous years, how does it compare to 2017, et cetera, et cetera. I think the short answer to that is that -- the negative thing, let me start by that, is that you don't have a round in Norway. You have awards in Norway, and this happens every other year, so that's the negative part. The positive part is that Mexico continues to be very good. Sierra Leone is back on the agenda again. And then again, as I implied, we are slightly more hopeful in terms of the interest level and the activity level in the U.S. GOM. So hopefully that would be seen in the results in either March or August.So in summary, we are very pleased of our Q4. We're pleased about the year. Again, we beat our market's expectations and we beat our own expectations, which is always good. We had a strong EBIT in Q4, and that really proves the leverage of the business model now. The good thing about the new amortization scheme is that whenever you pass a certain level, it goes straight to the bottom line, so strong EBIT margin. Significant improvement in free cash flow, $56 million versus $33 million last quarter or in Q4 of last year. Cash balance as strong as it's been in quite some time and it continues to grow, which is good. We have increased our dividend due to that, so to a level of $0.20 per share. And obviously, our ambition is to keep it at that level. So in that sense, it would be, if we were able to keep it flat, it would be $0.80 for the full year. We have -- as Sven Børre presented it to you, we have the industry-leading performance on return on capital employed, on cash conversion and you name it. And we see that some of you are sometimes making comparisons between the different seismic companies, who is best in this and who is best in that. And keep in mind, there's many ways to do amortization. There are different standards across the industry. There are different standards to recognize revenues, for example, from JVs, which we have a lot of. I think there's only one way to really compare seismic companies, and that's looking at return on capital employed and cash flow. And if you start doing that, I think you will agree to the point that we have industry-leading performance.Improved visibility for 2018, a result of increased backlog and ramp-up of our U.S. onshore activity. And also, let me just mention that with the effect from Q1 of this year, we will start preannouncing our quarterly revenues no later than the 6th trading day at the Oslo Stock Exchange after quarter close, regardless of how the revenues are. So in the past, we always get these phone calls, "Will there be a profit warning from TGS today? And what's going to happen? Is it Wednesday or is it Thursday?" Well, the good news is that from Q1 of 2018, we will announce that anyway. So whether they're below consensus or above consensus or whether it's according to our plans or your plans, we will announce it on a quarterly basis.2018 guidance. Investments, $260 million, pretty much flat. As I said, that's based on what we see in the market right now, and then obviously we have a cash balance to increase if we see a pickup in the market. Additional multiclient investments as usual from risk-sharing arrangements. Prefunding would be up from last year. So last year, we guided 40% to 45%, now we feel confident of increasing that to 45% to 50%. And then the amortization, as I said, approximately $310 million. And that's our guidance for the year. And with that, I will have Sven Børre come up and then we will take your questions. So thank you very much for your attention.

[John A. Schj. Olaisen, Co]

It's John Olaisen from ABG. A couple of questions. In Brazil, you're saying you have hired people both in Brazil and U.S. Gulf of Mexico -- or in Houston, sorry, to work towards Brazil. So are you talking about the organic growth in Brazil? Or is there any way you could get a quicker position -- good positioning in Brazil?

[Kristian Kuvaas Johansen]

We're looking at both. I cannot really say too much about the plans. But I mean, there is a lot of seismic in Brazil. So there is not a whole lot of seismic you can shoot unless you decide to do a completely different technology. So I mean, we're looking at organic opportunities, we're also looking whether there would be data libraries for sell. So if anyone hears this and have to a data library that they want to sell, then we're obviously looking at that as well. So yes, we're looking at both.

[John A. Schj. Olaisen, Co]

Can you comment a little bit on what's going on in the WesternGeco? How will -- how is this likely to impact TGS and OPEC, the fact that Schlumberger is stopping acquiring new data and [ contract more ]?

[Kristian Kuvaas Johansen]

Well, I mean, what -- yes, so what they have announced publicly is obviously that they will get out and they will exit the vessel market, which is quite neutral for us, I guess, given that they have been using those vessels mainly for multiclient themselves over the past 2 years. It's not going to be a significant difference. Then you can all also speculate what's going to happen to those vessels. If they show up in another company then the total number of vessels will remain the same and the market will still be very accessible from our point of view. It's kind of hard to speculate. I think the first time I read the news it was kind of neutral for TGS, I think. Then I saw a report this morning, I guess it was from yourself, referring to the fact that they will also reduce their multiclient investment significantly. That probably is marginally positive for us.

[John A. Schj. Olaisen, Co]

It's just that they have been one of your key partners in the U.S. Gulf of Mexico, and I just want -- now that they haven't got their own vessels anymore, because they say they will not use their own vessels to shoot their own multiclient data going forward. Will Schlumberger be a less attractive joint venture partner in U.S. Gulf of Mexico now for you guys?

[Kristian Kuvaas Johansen]

First of all, we have a very strong relationship for many years. And sometimes when you have an existing database that you built over many, many years, it's kind of hard to break out of that partnership and that's not our goal. Our intention is not to break out with the partnership because it makes a lot of sense to continue to overshoot your own data yourself. And so I don't think that, that's going to change very much. We have a very professional and good relationship to them. And I think we would feel like it is some kind of a gentleman's agreement to invite them in whenever we had a plan and I would expect that they do the same thing when they have a plan.

[John A. Schj. Olaisen, Co]

The Alonso project, is that a joint venture with Schlumberger?

[Kristian Kuvaas Johansen]

No. That's outside the area that we've usually been working together. It's south of the Mississippi Canyon.

[John A. Schj. Olaisen, Co]

Do you any plans to do anything with WesternGeco in 2018?

[Kristian Kuvaas Johansen]

I wouldn't tell you if we had, but I can say the last project we did together was Revolution that we did last year, which was a big coal survey on the western part of the GOM. And if we were to do any surveys over existing data, I can almost guarantee you that we'll certainly going to ask them.

[Christopher Møllerløkken, Research Analyst]

Christopher in Carnegie. You had a strong quarter in NSA and you had a high share of revenues from surveys being fully written down, and you mentioned onshore having a strong quarter. So was it strong quarter for all the onshore service? Any other you would highlight in the fourth quarter performance?

[Sven Børre Larsen, Chief Financial Officer]

No. The 27% of revenues that came from other service is not very much related to onshore. Bear in mind that we have a longer amortization profile on -- for onshore surveys than we do for marine surveys. So those 27%, you can assume mostly related to marine surveys.

[Christopher Møllerløkken, Research Analyst]

And in terms of geographies, was it mainly U.S. Gulf of Mexico causing this strong quarter in NSA?

[Sven Børre Larsen, Chief Financial Officer]

Yes. What we show in the chart, NSA includes land. So it's also a combination of the 2. Decent quarter in U.S. Gulf of Mexico, which always is the case when TGS is doing well. But maybe the biggest change is that also land had a very strong quarter.

[Christopher Møllerløkken, Research Analyst]

And final question. Given the project schedule, it seems like the 2018 investments will start a bit slow in first quarter, would you agree? And would you give an indication of your expected investments in first quarter?

[Kristian Kuvaas Johansen]

Yes, we are -- typically, we don't guide on that because you can basically see it from the vessel schedule what we're going to invest, and it's not a whole lot for Q1. I can agree with that. It's a -- we've had at least one project that has been delayed that you will probably see show up again in Q2 or Q3. That was expected to be done in Q1, so it's not going to be a high investment in Q1. I can confirm that.

[Unknown Analyst]

[ Olsen Rittren ]. Regarding the Gulf of Mexico, you mentioned last quarter that when oil price actually were below $60, you said that we have so far seen little activity in the Gulf of Mexico. And if oil price go above $60 and be there for some time, I hope and expect to see some improvement. Can you tell what you actually have seen in the last 3 months or 3.5 months since last time we saw you regarding the development in Gulf of Mexico with the oil price now above $60?

[Kristian Kuvaas Johansen]

Yes. I don't know if I was lucky or -- but I was right. We have seen a pickup, we have seen a pickup in U.S. GOM that has been related to the pickup in the oil price. And we've seen some of the smaller companies start to become more active in terms of looking at data or certainly being in our data rooms and reviewing deals. So I think we've seen a pickup there, which is very good. We've been saying for a long time that Gulf of Mexico is probably the most oil price-sensitive area because the production cost in the U.S. GOM is slightly higher than, for example, Brazil or Guyana or other places in the Western Hemisphere. And we're kind of have been waiting for this to happen. When the oil price breaks through, whether it's $60 or $65, I don't know -- but we've clearly seen that there is a pickup in the activity level.

[Sven Børre Larsen, Chief Financial Officer]

And also, of course, we have had a bit of -- seen a bit of exploration success in U.S. Gulf of Mexico lately, which helps the case, of course. And this Alonso survey that we are doing. If you look at where it is placed, it's in the slightly deeper waters of Gulf of Mexico. And the fact that we are able to gather quite decent prefunding on such a survey is also a signal that maybe the U.S. Gulf of Mexico clients are more forward-leaning in looking at new things.

[Unknown Analyst]

My last question relates to the late sale revenues because in Q4 '16, you had $145 million and this year, you have $143 million. That's flat like a pancake. It doesn't seem very sexy. But we know that, in the Q4 2016, you had a very specific sale of USD 42 million, which you can tell it's kind of a non-regular. So I wonder, was there some specific large sale in this quarter, Q4? Because if not, for me, it looks like a 40% year-on-year improvement in late sales, which is tremendous. Can you tell a bit more details about this?

[Kristian Kuvaas Johansen]

Let me start by saying, first, Q4 last year was very good and we had to come out with a profit warning because it was much better than expected, and as you remember, Q4 '16 was not particularly good for the overall industry, but for TGS it was very good. And I don't think we've ever commented on specific deals, but that was -- there were some year-end deals that were unusually high for this market back in Q4 last year. And when I first saw the consensus estimate for this year and a significant pickup, I was sweating a little bit and we were discussing this is going to be tough. And we managed to basically come in at the same level with a much better distribution of revenues than we had last year. And in particular, we saw a very good quarter onshore U.S., we saw more clients behind the revenues in U.S. offshore or Gulf of Mexico, and then it was weaker in the Eastern Hemisphere, but still a very solid result. So I think what you're alluding -- yes, go ahead.

[Sven Børre Larsen, Chief Financial Officer]

Yes. I assume that the $42 million you're referring to is the revenues related to risk-sharing deals in Q4 of 2016. And although most of that revenue were related to one specific survey, the Declaration survey in the Gulf of Mexico, it was spread across a number of different clients. So we don't regard that as kind of a one-off or a very special kind of thing. It's the accounting for that, that's a bit special.

[Unknown Analyst]

But trying to look apple-for-apple, the underlying trend year-over-year is definitely up, you will say, in activity?

[Kristian Kuvaas Johansen]

Yes.

[Unknown Analyst]

[ Taylor Nelson ], [indiscernible] Whole Markets. First one, question on the guiding you guided for in multiclient capital, $260 million. I guess that excludes risk-sharing. So including risk-sharing, what should we guess will be total CapEx for '18?

[Sven Børre Larsen, Chief Financial Officer]

Somewhat higher than $260 million, obviously. We don't know is the answer. We have some expectations. I mean, those risk-sharing related revenues are basically to be regarded as any other types of late sales revenues. So we have expectations, but those expectations they remain so uncertain right now that we do not want to give -- specify that more than we have done in our...

[Unknown Analyst]

But is it fair to assume that if the market continue to recover, we should expect lower risk-sharing investments in '18 compared to at least '16 and maybe also '17?

[Sven Børre Larsen, Chief Financial Officer]

If it recovers, you should probably see higher risk-sharing investments because it means that we are starting more of those surveys where we have risk-sharing arrangements.

[Unknown Analyst]

Okay. And on the backlog, your comment on that. I've seen a significant improvement in backlog in the past few weeks or months. So what's the level right now? Is it 10%, 20%, 30% higher than the $82 million?

[Kristian Kuvaas Johansen]

Well, I think you can calculate yourself approximately how much we're going to invest in those new projects that we have announced. I think we've given you some indications on that. So in terms of new investments, we probably added between $30 million and $40 million over the past few weeks, and you should assume to see quite significant prefunding of that. So that would add to the backlog, but then obviously we have revenues too that will reduce the backlog. But in total, I think you will see a net backlog increase of a few tenths.

[Sondre Dale Stormyr, Senior Analyst of Oil Service]

Sondre Stormyr from Danske Bank. On the lifted prefunding level guiding that you're putting out here for 2018, how much of that is driven by higher onshore investments, which typically carries higher prefunding? And then how do you see sort of the offshore prefunding level changing in '18 versus '17?

[Kristian Kuvaas Johansen]

We hope, of course, to see more onshore investments in '18 versus '17. And as we've discussed in the presentation, we see quite positive trend onshore. So part to that increase, I cannot quantify it here right now, but part to that increase in prefunding, right, obviously related to onshore. And so I would say, maybe on the marine side, there is no meaningful reason to expect that the underlying prefunding levels would be -- would change very much.

[Sondre Dale Stormyr, Senior Analyst of Oil Service]

And is it possible to be a more -- bit more granular on the percentage of investments last year, onshore, relative to the total and what you expect in 2018?

[Sven Børre Larsen, Chief Financial Officer]

We don't want to give that split.

[Kristian Kuvaas Johansen]

In fact, it would be higher this year.

[Sven Børre Larsen, Chief Financial Officer]

Yes.

[Sondre Dale Stormyr, Senior Analyst of Oil Service]

Finally, a lot of the majors and the oil companies you're referring to are not necessarily basing their budgets on current spot prices, but seem to be having a pretty decent buffer, basing budgets on kind of more $55, plus or minus, on average. Is it fair to assume that your MC investment guidance is kind of taking the same approach, pretty resilient to downside oil prices and with upside potential if stay where they are right now?

[Kristian Kuvaas Johansen]

I think that's probably a fair assumption to make is that we see some downside, especially based on the numbers from EIA and our discussions with clients who are, as you said, if you ask them for a number, they will probably say somewhere between $55 and $60, rather than $70, right? And that's probably a fair assumption that we base our guidance on a similar level.

[Sven Børre Larsen, Chief Financial Officer]

But I think it's probably fair to say that it's more upside than downside to the investment number for 2018, if that was the intention of the question.

[Sondre Dale Stormyr, Senior Analyst of Oil Service]

Yes. And also, and at least on my assessment, it seems like you're going to build cash also through -- with the new dividend also through 2018. Does the same apply to that, that you should sort of think of the risk on the upside? Or are there other cash flow items we should be aware of in 2018?

[Sven Børre Larsen, Chief Financial Officer]

No. I mean, it's -- we'll have to see how our cash flow develops. It's not straightforward to predict cash flow 12 months in advance very precisely. So we will have to see how the year develops. And as I said, if it's significantly better or significantly worse, for that matter, than our current expectations, we, of course, may do some adjustments to the level during the year. But the intention is, and the -- we're planning for paying out more or less the entire free cash flow.

[Terje Fatnes, Analyst]

Terje Fatnes from SEB. A bit leading question, but 2017 ends with a seismic market of 10% in total and multiclient revenues for the players of close to 20%. In all upturns, we have never seen that revenues in the second year of the recovery or the revenue growth is lower than the first year. So why shouldn't the market in 2018 be up more than 10% or maybe even closer to 20%, rather than these cautious statements by the oil companies?

[Kristian Kuvaas Johansen]

I think it's partly driven by what we say about the oil price. We think there is some consciousness in terms of wait and see, where is the oil price going to develop. We see that there is some buildup of supply going into 2018. And our clients are basically saying that they will either stay flat or they will cut their spending. So it's kind of hard to go against that and say, "No, we don't believe in what you're saying." So we think the market will grow 10% or 20%. I think, in 2017, there was a very, very strong positive momentum towards the end of the year in terms of the oil price and we know that there is a very strong relationship between -- or correlation between multiclient revenues and the oil price. I think there were some positive momentum driven by the oil price. And if you believe in EIA and you believe in what Statoil said yesterday, and some other companies are commenting on the risk to the oil price, then you should probably be a bit more cautious. And then it remains to be seen who's right. I mean, we cannot build our business and our plans on a hope for that things will continue like it did in Q4.

[Terje Fatnes, Analyst]

But it is a bit strange when you look on these comments by the oil companies. It's the same companies that have been the most active in the licensing rounds and paid huge amount of money to participate in licensing rounds. So why should they suddenly start to be cautious on also the seismic spending going forward? That normally should accelerate when they increase investments in multiclient or in the licensing rounds.

[Kristian Kuvaas Johansen]

Yes. I mean, we could discuss that forever. I think the false assumption that they're making about the future is that they probably think that the oil service prices are going to remain where they are today. And I don't think that's very sustainable. So I think that's part of where they will see some growth in spending is that there will be some kind of inflationary pressure in oil services. So -- but whether that turns in to be -- to turn into growth in CapEx in 2018 or whether we have to wait until '19, I mean, again, it remains to be seen. Any other questions before we end the session? So with that, I would thank you very much for your attention today and hope that you will be back after our Q1 presentation. So thank you very much.