TGS ASA

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Earnings Call Transcript 2021-Q4

[Kristian Kuvaas Johansen, Chief Executive Officer]

Good morning, and welcome to TGS Q4 2021 Earnings Release. My name is Kristian Johansen, I'm the CEO of TGS. And with me today, I have our CFO, Sven Larsen. Let me first draw your attention to the forward-looking statements that you can read when we finish up the presentation. The highlights for Q4 of 2021, we had net revenues of $120 million. That's segment numbers. That consists of late sales of about $83 million. That's actually slightly down from last year or Q4 last year, but it's significantly up from $33 million in Q3 of 2021.We had prefunding revenues of $25 million. That accounts for 46% prefunding and we had proprietary sales that came in higher than usual at $12 million. And the reason for that beat is partly related to a survey -- a proprietary survey that we did in the North Sea in Q4. We had a strong Q4 order inflow, so more than $160 million of new contracts signed, and that means that the backlog at the end of the quarter was $90 million, and that compares to $47 million at the end of Q3 of 2021. So definitely one of the highlights of this report and definitely a highlight of Q4 is the fact that we signed new contracts worth $160 million, which is the best order inflow we've had in a very long time, and that causes some of the reason for our optimism in today's report and especially when we talk about the market going forward, which we will come back to after the financial section of the earnings release.We have a robust financial position. We have net cash of $215 million, and that puts us in a unique position to continue to pay a dividend, a quarterly dividend of 0.4 so $0.14 per share, which again accounts for about $16 million on a quarterly dividend. In addition to that, we had buybacks of about $3 million during Q4, and that's part of the buyback program of $20 million that we announced at the General Meeting in 2021 and which we'll cease at the general meeting in May 2022.So again, as we have highlighted this morning, we see several signs of improving market conditions, and I will come back to that later in the presentation. Some of you may ask why do we do impairments in the same quarter as you highlight that the market is getting better. And the reason for that is, number one, we want to be very cautious about our balance sheet. Number two, obviously, we have the largest data library of the industry. There will always be certain areas, certain regions and certain projects that don't live up to the expectations. And again, taking a cautious view on our balance sheet, that's something we have decided to do despite the fact that we see a significant improvement in the market conditions overall.I'll go through the operational highlights of Q4, and then I will pass it over to our CFO. If we start with Europe, as I said, we had a big OBN survey carried out in Q3 and Q4 of 2021 and it's called NOAKA OBN. It's part of our strategy to provide a next-generation seismic data in the infrastructure-led exploration area of the Norwegian continental shelf. The first season of our NOAKA OBN project was completed in October 2021, and we have acquired approximately 300 square kilometers, which is about 2/3 of the full program.Data is now in processing, and it will be delivered to our clients in October 2022. And talking about that, we've made great improvements in our OBM processing over the years. And we got off to a really good start being the leader in terms of doing multiclient OBN surveys, both in Norway and the US Gulf of Mexico. And it's really great to hear the good feedback that we have from clients on the quality of our OBN processing. And I welcome other clients to have a look at those images and see what a significant uplift we can show through better technology in terms of acquisition, but significantly better and more advanced technologies in imaging and processing.So we're committed to complete the acquisition over the remaining NOAKA area in 2022. So we will be back there with a crew in the summer of 2022. And the goal is obviously to expand the area and shoot a larger area, just in line with what we did in 2021. So although the survey is considered to be proprietary, there's a lot of open acreage around it and surrounding it. So we still think this is going to be a really good multi-client project for TGS.Moving on to Asia Pacific. This is actually one of the more interesting areas at current, and I will come back to the drivers that we see in this market. But -- the key here is that some of these countries are just extremely population rich. And if you are population rich like India, for example, with 1.4 billion people and you import 85% of your energy needs and the prices of energy have gone up by 300% or 400% over the past 6 to 12 months, then you can imagine yourself what a hunger you have to start exploring for oil and gas and be independent in terms of your energy needs.So we've actually seen a significant uptick in interest in the Asia Pacific region in general. If you look further down on the page, you see that we have announced 120,000 kilometers of regional 2D cube. This is in Indonesia. Indonesia is another great example of a very population rich area. It's about the same size as the US in terms of population and the country is importing most of their oil and gas needs today. So obviously, great potential there as well. Then we have a 6,500 kilometers broadband 2D reprocessing project that is also in Indonesia, that's in the Natuna Basin. And then last but not least, we announced this morning a 250,000 kilometers of regional 2D reprocessing in India.So again, these 3 countries, if you add Bangladesh, where we did the Sarawak survey in Q4 are just great examples of where we see an uptick in interest and activity, partly based on the fact that energy prices are going through the roof in areas that are very dependent on import of oil and gas. So a great example of how we see the market is now changing and how we see areas pick up significantly. And these are areas where there's hardly been activity for the past 5 or 10 years, but where TGS still has data, which is good.So Sarawak Phase 1 commenced late October of 2021. it's going to cover an area of about 8,600 square kilometers, and we're doing this together with Schlumberger and PGS. The broadband 3D reprocessing project that comes along that is crossing the border of Timor-Leste and Australia and that continued in Q4 of 2021. So a lot of exciting projects going on in the Asia Pacific region. And again, a region that we haven't really talked too much about over the past few years in earnings releases, but you will definitely hear more about Asia Pacific and the specific countries in the next few earnings releases.Africa, also an area where you see an uptick in interest, and it's pretty much the same drivers. This is Egypt, where we are acquiring data as we speak. It's a red sea -- we commenced that in December 2021, and we will cover an area of approximately 6,000 square kilometers. And we're doing this in partnership with Schlumberger. Again, very similar drivers to what we see in Asia Pacific. Gas demand for local energy needs and export markets driving activity in Egypt. And the governments are very supportive to exploration strategies. And in that regard, we think there will be more potential in the Red Sea.You may even see an extension of the current survey in the Red sea, and you're definitely going to see more activity, both in the Red Sea and also on the Mediterranean side of Egypt. So again, areas that you haven't heard a lot about previously from TGS, but you will definitely hear more in the future. Latin America, we're doing a multiclient 3D survey in Suriname, and we're doing that in a consortium with CGG and BGP and I think all you need to do is to have a look at the map, and you'll see that Suriname is adjacent to Guyana. And in Guyana, we almost hear about new discoveries on a monthly basis.So obviously, an extremely prospective region, which drives the interest for data also in Suriname. So Phase 1 of this project includes about 11,100 square kilometers of new 3D. In addition to that, we're also doing 3,000 square kilometers of reprocessing of existing data in Suriname. There is potential for additional phases. So whenever we call a project Phase 1, you can probably assume that we have plans for a Phase II or a Phase III. And I think the best example of that would be in the US Gulf of Mexico where we have a Phase 52. But I'm not saying that we're going to be around for 52 phases in Suriname, but there is definitely potential outside the data that we're acquiring as we speak to.But again, Suriname offshore acres includes 3 blocks recently awarded and current open acreage offered in the 2023 bid rounds, and then we'll have a separate slide on these bid rounds coming up for 2022 and 2023. The data in Suriname be available in the first half of 2022. So it's running through the processing centers as we speak. Moving on to the US Gulf of Mexico. So our engagement too, as you see from the map here, is the next phase of our Gulf of Mexico ocean bottom node survey.It continues after we did amendment about 2 years ago. We did engagement one last year, and then we're doing engagement 2 this year, and we obviously have plans for further phases of both amendment and engagement. And again, this is an example where TGS has taken a leading role in terms of OBN acquisition and processing for our clients in both the US Gulf of Mexico and Norway. And again, by doing that, also develop new processing algorithms that have turned out to be very successful and again, clients are very excited about the quality of data coming out of the processing centers these days on both amendment and engagement surveys as well as the service that we are doing in Norway where NOAKA is the latest example.Data acquisition of this survey began in 2021, and it will complete in March 2022. And again, the combination of ultra-long offset OBM data and what we call Full Waveform Inversion, or FWI, imaging is proving to be very popular among our Gulf of Mexico operators. So that helps, obviously, execute their development and infrastructural-led exploration activities in the US Gulf of Mexico. And talking about that, so a lot of the recent surveys that we have carried out in the US Gulf of Mexico is overhead acreage. So it's less dependent on future licensing rounds, which I will come back to because obviously, there will be questions about what is the future of the lease sales in the US. But if you look behind the shaded area here and you see engagement 1 and engagement 2, you see that a lot of the blocks are already been taken, and they're already controlled by oil companies.You see for engagement 2, you see there is an open area in between. So in the middle of the survey, there is some open acreage. And typically, that's the open acreage where we would benefit from future licensing rounds. But on the left side and the right side of the survey, it's pretty much fully held by oil companies who have picked up these leases in previous lease sales. So that's why we're saying today, even in the earnings release, memo that it's -- although we're obviously not pleased about the uncertainty in the US Gulf of Mexico. A lot of the recent surveys we've done in the [ GOM ] are probably more reliant on exploration success and infrastructure-led exploration rather than future lease sales.So the Gulf of Mexico development and ILX remains a strong focus for our clients and also for small independents, and that's something we will definitely benefit from in the future. And talking about that, the status of the GOM lease sales, you probably saw the announcement from the OEM in a couple of weeks ago. And basically, the announcement says that lease sale 257, which was held in November 17, 2021, has been formally vacated by the judge. And this obviously came as a big surprise to the industry, although we knew that there were environmental institutions who are fighting against it, but still having a lease vacated is obviously unfortunate and very surprising for the industry.So the process now is that interior will now have to carry out a new National Environment Policy Act, we call it NEPA, and then go through the lease sale process all over again. So you basically start from scratch and then you follow the same procedures as you did in previous rounds where the key issue is actually to prove the consequences of shifting production from the Gulf of Mexico to elsewhere. So that's a key issue they are talking about the politicians now is what are the consequences if we stop producing or if we halt lease sales in the US.What we all know is that, that's going to lead to increased production somewhere else. And the question is how much is that going to increase emissions on an overall global level. And on the right-hand side, you can see the answer to that. So at least you can see McKinsey's interpretation of that, where you see the GOM stacks up really well compared to other key basins in the world. North Sea actually has the lowest emissions. So no question that Norway wants to continue to produce oil and gas.But the second lowest emissions are actually in the US Gulf of Mexico. And then followed by Brazil, and then you see some of the onshore basins further down the list, and then you see obviously US heavy oil, Canada oil sands and that kind of stuff being pretty much out of the bar chart here because they have so high emissions. But again, if you were to think about global emissions, then obviously, there is a very strong case for continuing to produce oil and gas in the Gulf of Mexico. And we think that in the long term, we think politicians will obviously look at this because the consequence of shutting down the Gulf of Mexico will obviously be that you shift spending over to US onshore, which, again, we will benefit from, but the world will not benefit from that because it's significantly higher emissions as you see from this bar chart.So lease sale 257 it falls within the 2017 to 2022 leasing program. That expires on 30th of June 2022. So the chances of another lease sale before the expiration of that period is rather low as it looks right now. But then the second question is, when is the next 5-year plan going to be announced because the deadline for that is 30th of June 2022. So that may also be delayed. But again, I think what you need to take from this presentation is that the industry is still very optimistic that there will be a solution to this.There is definitely facts on the table here that can be presented to interior and then hopefully, the pressure in the US on politicians right now with record high gasoline prices and electricity prices around the world are going through the roof. We think that over time, that may have a positive impact on this situation. So more to be followed up in that regard. Finally, I just want to talk a little bit about the progress we have made on the new energy solution strategy. This is something we're really proud of. We kicked it off in -- in the spring of 2021. And when we look at where we are today, and we're actually really proud we made an acquisition of a company called 4C in the summer of 2021.And if you look on the upper left-hand side and look at the bar chart there, you see that 4C had a growth in order inflow of 53% in Q4 of 2021. Overall, for the full year, they had an order inflow growth of 47%. So it's a really great performance by Chris Anderson and his team. And we're just extremely pleased to have 4C as part of the TGS family. And the plan is obviously that 4C is going to be one of the building blocks to expand the services of TGS and make sure that we have a portfolio that doesn't only cover oil and gas data but data throughout the value chain and covering all the different renewable energies as well as oil and gas.In addition to that, we have completed the Southern USA CO2 Atlas. So this is a storage Atlas, which basically tells operators where the best storage opportunities are for carbon capture and storage. We're doing that together with a company called Canadian discovery. And this allows clients to look at a map and basically rank the different alternatives and the different basins and the subsurface in terms of opportunities for future carbon capture and storage projects.Again, this is an industry that is going to grow tremendously over the next decades. And TGS is in a great position to provide this data. And it's another example of how subsurface data can be used very effectively outside the core exploration business that we are doing today. Another example of that is that we're launching what we call an integrated wind Atlas application. This is an app that wind developers can use to do the same thing so basically rank the different area and screen the different area for offshore lease. And you see an example of that on the upper right-hand corner of the slide, where you see a picture of the ScotWind application, so the awards for ScotWind and you see that the data and the data showing where there is best to be positioned in terms of not only wind speed, but all the other factors that comes into place in terms of making a decision where you want to be and where you want to bid and where you want to put up your infrastructure for the future.So a very exciting project that we just launched about a week ago. So you can go to tgs.com, and see more of that. And last but not least, we're also pleased that we commercialized our digital Acoustic Sensing VSP processing solutions for 4D reservoir and carbon storage monitoring and won the first 4D project awarded by a super major in this regard. And some of you may remember that we announced a collaboration with Halliburton in this regard, where TGS is doing the DAS VSP processing and Halliburton provides some technology into that. So this is a great example of the first commercial project won by TGS in that regard. So very pleased about the collaboration with Halliburton and very pleased to see super majors buying into this now.So lots of interesting stuff going on in the new energy solutions business. So with that, I want to hand it over to Sven Burg, who's going to go through the financials, and then I'll come back and talk about the outlook for our business. Thank you very much. We had one slide that we cannot forget. It's on our ESG performance. And we are once again proud of making good progress in our ESG strategy and performance. You see, I'm not going to go through all the awards that we have won through 2021, but just conclude that we are considered to be best-in-class. We're considered to be among the best Norwegian companies in terms of ESG performance considered to be among the best in our industry as well on a global basis.And last week, we announced that once again, we qualified for the Bloomberg Gender Equality Index with 1 out of 2 Norwegian companies and 1 out of 18 global oil and gas or energy companies or energy service companies. And again, that's something we're very proud of. We qualified last year, but this year, we qualified with an even better score. So now it's time to hand it over to Sven Børre Larsen and the financial situation for Q4. Thank you.

[Sven Børre Larsen, Chief Financial Officer]

Thank you very much for that, Kristian, and good morning, everyone. I'll start off with some practicalities with respect to our financial reporting. As you know, IFRS 15, the accounting standard regarding revenues from contracts with customers came into force from 1st of January 2018. As discussed extensively in the past, this has had significant impact on revenue recognition for the multi-client industry. Since then, TGS has reported 2 sets of accounts.We have reported the IFRS accounts which obviously follows the IFRS rules and the segment reporting accounts, which follows the old accounting standards prior to IFRS 15. We have now decided that from the financial year of 2022, we will discontinue the segment reporting that we have done since 2018. Instead, we will introduce alternative performance measures that will help the readers of our accounts to get -- to get at least the same level of understanding of the accounts as they have done before and understanding of the fundamental development and the drivers for our business.So our plan is to issue a detailed description of the APMs, including historical development, well in advance of the Q1 report that will be published in May this year. But I can already now say that focus will be on order inflow and order backlog in addition to cash flow. Also, we will probably continue to report segment revenues in order to ensure continuity in our reporting and make sure that we -- it's still -- you can still compare to our own history and also to our peers that probably will continue with the segment reporting. But we will come back to this in more detail in a few weeks' time.Then I'm going into the normal content of the financial presentation. Starting off with talking about net revenues we had prefunding revenues of $25 million in the quarter, which is significantly higher than the $13 million that we had in the same quarter of last year. This is driven by $54 million of investments in the quarter and a prefunding rate of 46%. We had late sales of $83 million in the quarter, which represents significantly larger than normal seasonal upswing in a normal year or the long-term average of Q4 late sales is to be 35% to 36% of the full year late sales.And this year, it was 42%. So we had a really strong momentum in Q4 relative to what we have seen earlier in the year. Then to proprietary revenues, $12 million, which is significantly higher than the run rate that you've seen in the past. And as Kristian already alluded to, this has to do with the NOAKA OBN project in Norway, which is partially proprietary, but also or mostly proprietary, but also with some multi-client content. So it's kind of a hybrid survey. But as I said, part of it is characterized as proprietary and is, as such, recognized as part of our proprietary revenues. You will also see that the cost of this is recognized as cost of goods sold and not capitalized to our library as we normally would do with a multiclient project.This means that we had $120 million of net revenues in the quarter, which is more or less exactly the same as we had in the same quarter of last year. Then focusing a little bit on operating expenses on the top left-hand chart, we had $26 million of operating expenses. If you can include -- this includes personnel costs and other operating expenses. It's a little bit higher than what you normally would expect. And this is partially due to some unusual items that are included and partially as we came back into a bonus position for our employees in Q4, so that has also been charged to that number.The run rate going forward will probably be in the range of $20 million to $22 million per quarter, excluding any bonuses that we hopefully will generate. Then talking about amortization and impairments, we had a total amortization of $167 million in the quarter. This includes $97 million of impairments of the multi-client library. We have chosen to take a cautious approach and despite the fact that we see an improving market outlook on a macro basis.The reason for this is that certain of the regions we are exposed to likely to remain a little bit out of favor even if we see an improvement of the market. So we expect to see less improvement in these markets relative to the more general market trends. The clearest example of this is from the frontier parts of Norway. As you know, we have done a significant amount of service in the Barents Sea in the past. We do not have massive amounts of book value left there. But with these impairments, we are taking out the last bits of the book values that we have in the Barents Sea.We've also impaired parts of the service that we have in the frontier parts or outer parts of the Norwegian Sea in Norway. In addition to this, we have also -- there are also a few individual service around the world where special circumstances have triggered impairment for instance, in Latin America, and we are also taken down one survey onshore, the US. For 2022, we expect amortization to be in the range of $210 million to $240 million, given the plan that we have for investments right now, but this may obviously change if our plans and our forecast for investments and investment activity changes.Then looking at our operating result at the bottom left-hand slide, obviously, with the large impairments, we had a negative operating profit, but you will note that it would have been positive if we didn't charge the $97 million impairment. This obviously puts us in a good position for 2022. MultiClient revenues, as I already mentioned were $55 million in the quarter. The largest investments were related to the engagement 2 survey in the Gulf of Mexico and the Sarawak survey in Malaysia. And we had a 46% prefunding rate in the quarter.We are once again showing very strong performance with respect to cash flow. We had free cash flow of $163 million in 2021, corresponding to a very high free cash flow conversion rate. So we divide the free cash flow by revenues of 53%. Obviously, the very strong free cash flow in 2021 has to be seen in context with a rather weak cash flow we have had in 2020. So if you combine those 2 years, you will see a pretty normal picture. Of course, with a strong cash flow, it means that we, as always, end the year with a very strong balance sheet, we had $215 million of net cash at year-end which obviously provides us with a lot of flexibility for increasing investments beyond the current guidance if market condition -- if market conditions permit for that.Since we acquired Spectrum in 2019, we have had, as you know, substantial presence in Latin America. And as you also know, this is a region with very complex tax and regulatory frameworks. As such, we have lately conducted a thorough review of parts of the historical accounting practices related to this region and has concluded that certain changes are required. Therefore, we have done some restatements of prior year's accounts, which have -- which has had limited impact on the segment accounts in 2021.The impact on the equity opening balance is approximately $20 million. We'll find more information about this in the notes of the quarterly report. Then to the segment income statement. We had $119.5 million of revenue in the quarter. Cost of goods sold, as I mentioned earlier were a bit higher than normal due to the NOAKA survey $8.5 million. Personnel costs, $14.2 million that include bonus payments that we didn't have in the past 2 quarters, and we had other operating costs of $12.7 million, which gave us an EBITDA of $84 million, which corresponds to a margin of 70%. We had the impairments booked as part of the amortization line here of $97 million.So total amortization were $167 million, adding on depreciation means that we ended up with a negative operating result of $87.7 million. I will draw your attention now to the foreign exchange line in the accounts. We have booked an exchange loss of $15 million. The majority of this relates to our customer contract entered into in late 2019. Normally, we insist that all our contracts are in dollars. But we accepted this one in local currency as we had significant OpEx and taxes in local currency, and that's also part of the investment for this project was in local currency.As such, the net loss related to this is significantly smaller than what is line item -- line item in the accounts suggests. This meant that we had a negative result before taxes of $103.4 million, a negative tax cost since we had a loss of $16.7 million, which gave us a net income of $86.7 million negative. As I already alluded to, our balance sheet remains very robust, $215 million of cash at year-end and with a very strong equity ratio. Cash flow, as mentioned, strong in the quarter, $117 million of cash flow from operations.We invested $76 million cash during the quarter. Then we paid dividends of $16 million, and we bought back shares worth $3 million approximately, which gave us a net cash flow that was positive by $19.2 million. Then to the dividend, and I'm happy to once again announce that the Board has resolved to continue to pay dividends based on the strong balance sheet that we have and the improving market outlook. So we will pay $0.14 per share for Q4. [ That date ] is set to 17th of February, and the payment date is the 3rd of March. As I mentioned, in addition, we bought back shares worth of $3 million in the quarter. We have $4.3 million left on this share buyback program, which expires around our AGM date in May. So by that, I hand the word back to Kristian to go through the market outlook.

[Kristian Kuvaas Johansen, Chief Executive Officer]

Thank you very much, Sven Børre. So starting on the first slide, as we have indicated this morning, we see several signs of improving market conditions. And I'm going to go through some of the reasons for that in the following slides. Number one is that we see obviously higher oil and gas prices. Number two is an improved order inflow, as you could see from our backlog after Q4. Number three is that we see a significant increase in E&P spending budgets being announced over the past few weeks by the super majors and other clients. Number four is that exploration economics are at attractive levels, where the cost of exploration versus the oil price is at a gap that we've hardly ever seen in history. And then last but not least, improved license round activity expected for 2022 and even for the years after that.So the high oil and gas prices, I don't think we need to spend a lot of time on that. I think, first of all, you've obviously read the reports, you follow the oil price development and the gas price development. But probably more important is that we all feel it on our own wallet right now. In the US, prices of gasoline and of course, you know that Americans are driving a lot. So the prices of gasoline are record high now. We've hardly ever seen prices at the level you see now where you have between $4 and $5 per gallon. So a significant increase in that.We see natural gas prices. We see the gas crisis in Europe that we've -- probably the worst is behind us, as you see from the graph. But again, we currently have gas prices that are about 4 to 5x as high as the average in 2019 and 2020. So obviously, this points at a very unsustainable situation where, obviously, this will need to be sorted out in terms of reducing the impact of and the inflationary impact of very high prices of oil and gas. Second one is strong order inflow. So we have talked about this today. We had a contract inflow of more than $160 million during Q4.It's among the highest order inflows we've ever seen in the history of TGS. Obviously, a significant uptick from what you've seen in that in the previous 2 years, driven by obviously COVID-19. And these projects have -- or these commitments have been received on several projects. We've talked about all these projects today, NOAKA OBN, Sarawak 3D, Suriname, Engagement Phase 2 and Red Sea. And the good news is obviously that some of these projects may even continue in different phases.So while we're in early stages of some of this, it may continue for a while. We also see increasing E&P spending budgets. Some of you may have been caught by surprise to see some of the announcements from super majors about their 2022 CapEx plans. Exxon Mobile 27% to 45% increase year-on-year, Chevron more than 20%, Shell 15% to 35%, BP to 9% to 17%, Equinor about 23% increase for next year or this year, ConocoPhillips 36% and Hess 42%.And if you asked us back in September or October, what do you think about seismic spending for 2022, and we asked our clients obviously the same question, they would probably say or most of them would say that it's flat or flattish. If we ask the same question today, they would probably refer to these numbers and say that seismic wouldn't deviate much from the overall E&P spending guidance. And that's obviously great news, and that's the reason for most of our optimism today in terms of going into a better market.What's the timing of that? Well, that's still hard to say. And sometimes it may take a little bit of time before you start to see the results of that. But we definitely see more hectic activity in terms of client meetings. We have data showing that probably are twice the frequency as we had last year. So things are definitely moving in the right direction, and that makes us quite optimistic for 2022 and definitely for the years after that. Exploration economics are also at very attractive levels. And if you look on the left-hand graph there, you see that the gap between exploration costs and the price of Brent is at the highest level it's ever been.Brent continues to be extremely strong. It's been going from [indiscernible] back during when COVID hit us to a level today above $90 per barrel. So obviously, a very strong oil price, and that's also the reason why you see companies like Goldman Sachs and Pareto and a few others being very bullish on the oil price going forward as well. So again, very attractive market to explore for oil and gas right now because of the low prices of exploration and a strong cash flow for our clients.And then we see an improving license round activity, and obviously not going to go through this. It's a rather busy slide, but this is good in this regard because it means that there's a lot of licensing rounds being planned for 2022. Obviously, you see the usual suspects US. Gulf of Mexico, obviously, uncertainty related to the timing of the lease sale 258 and the new 5-year plan, but we think it's going to be there. Canada will have around this year. Latin America, you see permanent offer in Brazil, which is taking place as we speak. And that permanent offer has more acreage and any licensing round in Brazil have had in a very, very long time. So lots of acres being offered now as part of the permanent offer round.And then I want to draw your attention to Africa and Asia Pacific, where we probably see the highest growth in terms of activity. And I've been through the reasons for that in my previous slides when I talk about population rich countries that are importing a lot of the oil and gas and energy today. And obviously, they need to become more independent in terms of energy needs, and there's a great push in that regard for both countries in Africa, but probably more important contracts in Asia Pacific where we see the highest growth as we speak.So our guidance for 2022, based on that, we are comfortable to invest more. We -- we announced this morning that we're going to invest about $200 million in new multi-client projects for 2022. Our prefunding rate is going to be higher than it was in 2021. We will continue to outperform in terms of cash flow and return on capital, and I'm extremely proud about our cash flow for 2021, which accounts for more than $160 million in free cash flow, defined by sales minus multiclient investments. So very strong free cash flow in 2021. We still think that's going to be strong in 2022 as well, which again, puts us in a unique position to continue to pay a dividend.There were some speculations back in the fall of 2021 from some analysts that TGS may not be in a position to continue to pay a dividend after a relatively weak free cash flow in Q3. I think we proved in Q4 that the dividend is safe and there's no reason to believe that TGS will cut that in the near future. We also target industry-leading distribution to shareholders. And the distribution of our multi-client investments is 200 for the year. We expect about 20% of that to happen in Q1, another 20% in Q2, and then we expect 60% of our total investments to happen during the second half of the year.So summing up that, net revenues of $120 million, which is the same level as we had in Q4 last year. We had a strong order inflow more than $160 million as we have discussed today, means that we have a backlog at $90 million, and that compares to $47 million at the end of Q3. Robust financial position we have a net cash of $215 million at the end of the quarter, puts us in a unique position to continue to pay dividends, $16 million paid out to our shareholders based on Q4. And in addition to that, the buyback where we carried out $3 million of additional shareholder distribution in Q4. several signs of improving market conditions and I guess we have been through them today. So I don't need to repeat that, but I will open up for your Q&A and ask Sven Børre to come up and join me for that. Please.

[Sven Børre Larsen, Chief Financial Officer]

Okay. You can all use the [ webcast ] to post questions, and we will hopefully get them up here on the monitor. We have got some questions already. So this first one is generally on -- generally a normal year for TGS, how much of late sales does information from the multi-client [ library ] that has already been fully written off [indiscernible]. The question is asked in order to get a clue about how a bad market may affect TGS' earnings capacity as it may recover. So this quarter, it was roughly 20%, and that's not unusual. It varies quite a bit from quarter to quarter, but the long-term average is probably somewhere between 15% and 20%.Then we have a question -- or actually 2 questions from Jørgen Lande in Danske Bank. On the NOAKA OBN survey, can you indicate the prefunding rate range on the survey, how essential or influential is this survey with regards to your guided 2022 prefunding rate level? [indiscernible] As you said, most of that is proprietary and as such, not relevant for the prefunding rate. We'll probably do some or continue doing more phases of NOAKA in 2022. Part of that may be proprietary as well. So -- and that will obviously still not have an impact on the prefunding rate. So if anything, the multiclient part of NOAKA, which obviously have lower almost no prefunding, will have kind of a negative impact on prefunding rate, but that, of course, have been accounted for in our indications.And then the other question from Jorgen relates to the investment profile, I guess he posted that question prior to you going through that slide. But just to repeat, we expect roughly 20% in Q1, roughly 20% in Q2 and the rest in the second half of the year.Then we have a question from Kim Uggedal at SEB. Following up on your comments of a gradual recovery, what do you expect of sales potential from the different regions outside of Gulf of Mexico in 2022 versus 2021, thinking in particular about Latin America, which was quite disappointing in 2021, also what you see of transfer fee potential in '22?

[Kristian Kuvaas Johansen, Chief Executive Officer]

Yes, I can give that a shot. I think in general, you will see relatively healthy spending increases. And if you listen to our clients right now, they're all indicating that there will be higher spending in 2022 than in '21 and pretty much across the board. I think regions that will do specifically well in 2022 versus '21 is, yes, you're touching on Latin America. I think 2021 was rather disappointing for Brazil where we have a lot of data. I expect 2022 to be better. So Brazil is one example of that. We think onshore US, I mean, it's taken a long time for onshore to recover, and it's been very slow for 2021. It seems like the operators are being very disciplined and they've burned their fingers in the past, but we expect to see a relatively good uptick of activity there, too. And then Asia Pacific, we've touched on that. Asia Pacific is obviously driven by huge populations and the need to be independent in terms of energy. So there will be more activity there and Africa as well. So we think all those regions are going to grow. US Gulf of Mexico, obviously, a bit uncertain, and we had a pretty good Q4 in US Gulf of Mexico. As we said today, it's -- some of that may be impacted for the future if you don't have a license round for another 12 months. But keep in mind, we were at the same point 1 year ago where Biden introduced a pause on licensing rounds, and we came back and had a round in Q4, and that was pretty good. So I think the experience we have is that when a region is either shut down or there is less activity, then budgets tend to shift somewhere else. And in terms of the US Gulf of Mexico, if you assume that some of that spending will be shifted, we think it's going to be shifted to the US shale and US onshore. That's quite likely to happen. So I hope that answered your question.

[Sven Børre Larsen, Chief Financial Officer]

Yes. And Kim is also following up with asking about how well our library outside of Gulf of Mexico again is fitting to the trend of ILX infrastructure-led exploration and less focus on frontiers.

[Kristian Kuvaas Johansen, Chief Executive Officer]

Yes. I mean it's clear that TGS traditionally, and especially spectrum is very -- or spectrum was very frontier. TGS probably less so, but more frontier than some of our peers. But I think it's -- Norway is probably where we are considered to be frontier compared to our peers, where we have most of our data in the Barents Sea and the outer north or Norwegian sea. I think in terms of Africa and Asia Pacific, we have a library that is well positioned for ILX. Brazil also, some of the surveys that we have done in Brazil are a combination of Frontier and ILX. So -- and again, go from Mexico, what we have there, the majority is actually ILX focused.

[Sven Børre Larsen, Chief Financial Officer]

If I may add, Kristian and also in Norway, we are building up ILX presence, so to speak, with the Utsira Survey and then NOAKA survey, the OBN service that we have done in the North Sea.

[Kristian Kuvaas Johansen, Chief Executive Officer]

And adding to that, I think it's interesting to see that there are clients now we start talking about frontier again. I met a client about 2 weeks ago who said that their frontier budget for next year is going to be 100% of what it was in 2021, so '22 versus '21. And getting those signals at an early stage is -- causes some ground for optimism of course. So Frontier is definitely not bad. There are clients who are now looking at Frontier again, and obviously, we plan to benefit from that.

[Sven Børre Larsen, Chief Financial Officer]

Yes. And then a few questions from John Olaisen at ABG. Why are you not increasing MC investors more than you do, given the optimistic market outlook. And could you talk a bit more about the 2022 prefunding rate? It seems that they are generally increasing. If so, then again, yes, referring to his first question, why are we not increasing multiclient investments more?

[Kristian Kuvaas Johansen, Chief Executive Officer]

Yes. I think right now, we have pretty good visibility on our investments, and we feel good about the number around $200 million. We obviously have a balance sheet to invest far more than that. So we will see how the market develops. And I think right now, a significant portion of the $200 million is related to ILX and existing infrastructure. And so in that regard, I think the upside would be if we see further signals that frontier is picking up, then there will be additional dollars put into our investments. But for now, we have good visibility on the $200 million, and we feel that's a prudent number to announce to the market.

[Sven Børre Larsen, Chief Financial Officer]

And then we have some accounting-related questions. We say you mentioned that you expect 2022 amortization charge of $210 million to $240 million. This will mean the sixth year in a row with an amortization significantly higher than the investments and falling book value of the library. Could you elaborate a little bit on this trend? And if possible, give some indication of what the amortization charge will be in 2023, assuming flat MC investments.Yes, it's -- John is obviously completely right. So our amortization consists of 2 parts. We have a straight-line amortization of the Vintage library, and we have a WIP amortization. So that's the amortization on the projects where we are recognizing revenues on a POC basis during their work-in-progress phase. So obviously, the -- the straight line part of the amortization has continued to fall and will probably be lower in '20 -- or significantly lower in '22 compared to 23%. So that's kind of a -- or 2021, sorry. That's a very positive trend, obviously. And then we expect the WIP amortization to be slightly higher, obviously, in 2022, partially due to the higher investments and partially due to -- which hopefully will lead to more which we expect will lead to more prefunding revenue, but also more late sales related to service that are in progress.And then in the longer term, obviously, they will converge. So if we continue if our investments stay flat at some stage, you'll probably see that the amortization is coming down to the same level. And John is obviously completely right that amortization has been higher than investments for quite a while. But you see that the gap we expect now for 2022 is slower than what we've seen in the past. And it also obviously reflects the fairly, what should I say, conservative amortization process that we follow.You take a write-down on the MC library that left goodwill unchanged. Could you talk a little bit about the consideration for leaving goodwill and why it was not written down. Yes. Goodwill is -- you measure that in a somewhat different way. First of all, it's helpful doing impairments of the library because all other things equal, leave more headroom for goodwill. Secondly, you have a much longer time horizon for goodwill than we have on our surveys. The surveys have typically -- most of the service we apply or assume an economic life of only 4 years. So some of them will have only 1 year left of the forecasting horizon. Some will have 3, some will have 2 and so forth, whereas for goodwill, you have a much longer time horizon, which means that if you expect a steeper recovery at some stage, you will get -- a goodwill will be more positively affected by that than the multi-client library from a kind of accounting technical viewpoint.I hope that answered John's question. Then from Mick Pickup at Barclays. You talked about encouraging new energy start. What are expectations for 2022 in terms of rate of growth and given the growth, are there other areas you can look at to deploy capital.

[Kristian Kuvaas Johansen, Chief Executive Officer]

Yes. Good question, Mick. We've gotten off to a good start, and we had an acquisition of a company called 4C. And in addition to 4C, we're developing quite a few internal or organic initiatives, as you saw from one of our slides today. So we're quite optimistic that we're going to continue to have organic growth. We're going to launch new products and services to our clients. So that in itself is going to be a good business for 2022. We're also looking at M&As. We have been -- had a long list of targets that we have been reviewing and we've even been bidding for something. But as you know, the prices of some of this stuff may be rather steep or rather sharp. So I still think you're going to see a combination of organic growth and inorganic growth. And over time, that will become a quite significant part of our business. For 2022, if we could get to $10 million plus of revenues, that will be pretty good. We -- hopefully, we can have even more, but it depends on whether we succeed in our M&A initiatives. But some of these organic initiatives are definitely paying off well. So we're quite optimistic about the future here.

[Sven Børre Larsen, Chief Financial Officer]

And then Mick, want to know more about Q4, a decent step-up in late sales, but how was it versus your expectations? Where they hope it could have been better and who did or didn't show up with our checkbook.

[Kristian Kuvaas Johansen, Chief Executive Officer]

No, I think in general, we can be quite transparent on that. We did slightly better than we expected. We expect it to be north of 100, but 120 was probably slightly more than we expected. So we're quite pleased about the development of Q4. And probably even more important, I think the order inflow of $160 million just proves that clients are definitely coming back with their checkbooks. There are definitely clients who still haven't spent a lot of money on seismic. And I think that some of the European super majors have obviously been very busy with our reorganizations and restructurings and their strategic plans about how do you split CapEx between oil and gas and renewables and that kind of stuff. That's taking longer, of course. But in general, I think Q4 was a healthy quarter in terms of both sales and also the order inflow and the outlook for the future.

[Sven Børre Larsen, Chief Financial Officer]

Yes. And then we have a question from Kevin Rogers from Chevron. Thanks for the presentation. First question. You impaired some frontier service this quarter. In your book value of -- and I guess is referring to IFRS book value of $700 million at the end of 2021, what remains related to, number one, surveys that you impaired this quarter; and two, to what we can call frontier zones. So to answer that. I mean we -- as I indicated, in certain areas like the Barents Sea, we have taken basically the book value down to 0. I don't have the exact number, to be honest, or how much of the impaired service that we, on average, then have left in percentage terms, but it is a little bit, not much. And then how much do we have left in what we can call frontier zones? In Norway, we have quite limited exposure now to frontier zones, but in other areas where we do expect an uptick eventually in frontier exploration or what you can call from their exploration. We still have book value left. That's particularly in places like, for instance, Latin America and parts of Africa where we see a more promising outlook for an upswing than we do in, for instance, Norway and then he has a question.

[Kristian Kuvaas Johansen, Chief Executive Officer]

I would just add to that. I think it's important to define what is Frontier. There is no clear distinction between the 2. And even taking the Barents Sea, as we would definitely call that Frontier Basin, but Equinor is building now infrastructure around the Wisting discovery. So I mean Gulf of Mexico -- another example is Gulf of Mexico Frontier or is it mature? I would definitely say it's more mature than many other basins in the world given the history of seismic and the history of infrastructure, the closeness of infrastructure, et cetera. So in that regard, it's kind of unfair to draw that very clear line between Frontier and ILX because there are certainly regions where TGS is really strong that some people would call Frontier, but I would definitely say that it has more infrastructure than pretty much any place in the world.

[Sven Børre Larsen, Chief Financial Officer]

And then he asks a question about the M&A strategy. Is there any business that you would be interested in? And then he's referencing 2 examples, the PGS Library and also the imaging activities of Schlumberger.

[Kristian Kuvaas Johansen, Chief Executive Officer]

Well, I mean we cannot be too specific on our strategic plans in that regard. But I mean we have a strategic plan of being a consolidator in this industry. This has been -- we've been quite open about that for many years and we think that the industry, although we have gone through some consolidation, we still need further consolidation because as it is right now and if you look at the numbers for 2020 and 2021 for the industry as a whole, I don't think there's any company who have positive return on capital. So if the industry as a whole has negative return on capital, then obviously there is a need for further consolidation. So in that regard, we definitely would look for opportunities to do that. So I don't want to comment on specific opportunities in that regard. But in general terms, yes, we're definitely looking at that.

[Sven Børre Larsen, Chief Financial Officer]

And then the last question I think from [ Israth Hassan ]. What does the pipeline of new energy renewable projects investments look like? How should we think about capital allocation into these segments over the next 3 years? I guess that was answered earlier.

[Kristian Kuvaas Johansen, Chief Executive Officer]

I think in terms of organic, you will see that our CapEx would be single-digit million dollars for sure. It's not going to be massive. But I think over time, that will gradually step up and then it will also be accompanied by more M&A. So again, we're looking at that. We cannot give you any guidance of how big those acquisitions could be as of now.

[Sven Børre Larsen, Chief Financial Officer]

That's it.

[Kristian Kuvaas Johansen, Chief Executive Officer]

Thank you very much and thanks for everyone who was listening into our Q4 earnings release and we welcome you back to listen to our Q1 earnings release later this year. So thank you very much for your attention and see you soon. Thank you.