Transportadora de Gas del Sur SA TGS

Hello and welcome to TDS Q1 2021 earnings release call. Throughout this call, all participants will be in a listen-only mode, and afterwards, there will be a question-and-answer session. And just to remind you that this conference call is being recorded. I am now pleased to present Christian Johansson, CEO. Please go ahead with your meeting.

Thank you very much, and good morning, everyone. Welcome to this investor call. This is Christian Johansen, CEO of TGS, and I'm doing this call from our operational headquarter in Houston. With me from Oslo, I have our CFO, Frederik Amundsen, and our EVP of Operations and New Energy Solutions, Jan Skolmester. Before we start the Q&A session, let me just re-emphasize a key message from our Q1 earnings release today. Net segment revenues amounted to $75 million in Q1 of 2021. This compares to about 152 million in Q1 of last year. Segment EBITDA was $51 million versus 126 million in the same quarter of 2020. Free cash flow was 84 million in Q1, up from 1 million in Q1 of last year. Including shareholder distribution of 19 million, the cash holding increased by $58 million to $254 million on the 31st of March 2021. The solid financial position allows TGS to maintain the quarterly dividends at $0.14 per share and continues share repurchase program with a remaining value of up to $17 million. In my opinion, there are three key takeaways from our Q1 earnings release. Number one, despite the substantial increase in the oil price over the past six months, exploration spending remains muted. Please have a look at slide 16 in your package, and you will see that the correlations between oil price and seismic spending, which has historically been very strong, seems to be broken for now. Our clients are indicating that their strong cash flow will mainly be directed at dividends, share buybacks, and deleveraging balance sheets. While we remain cautiously optimistic for a pickup in activity towards the end of the year, we expect our near-term organic multi-client investments to be lower, partly due to use of supplier risk sharing and JVs in this challenging market. As a result, we continue to add high volumes of data to our library and generate strong cash flow but lower dollar investments. The second point that we'd like you to walk away with is our truly unique ability to generate cash in challenging markets. This quarter, we had a free cash flow of $84 million, and even after dividends and share buybacks, our cash balance grew to $254 million. This is an extremely satisfactory situation to be in, and it allows us to combine allocation of capital to our shareholders, as well as looking at counter-cyclical M&A opportunities, as well as M&A for diversification, which we announced this morning. And last but not least, I would like to spend a few minutes on our diversification strategy and our acquisition of 4C Offshore. The acquisition fits perfectly with our ambition to become the leading global provider of energy data and insights to support decision-making processes across the energy value chain. Growing our business from data to insight and information has been a goal for TGS within our core business for many years. We've been looking at companies within oil and gas information and research such as IHS, Woodmac, et cetera, and been fascinated by their high proportion of recurring revenues and the trading multiples that are significantly higher than traditional service companies. Now we're making that move, but we do it in a new market, offshore wind. Not only can we use this acquisition as a building block for both organic and inorganic growth initiatives, but we can also transfer knowledge about business models subscription models, et cetera, to our core businesses within oil and gas. I'm extremely excited about this, and it goes way longer than just adding a profitable company with single-digit dollar revenues to our portfolio. This is actually a critical part of our strategy for the future. As a final remark, I have to repeat that we're fighting a very challenging market right now. However, we're delivering on our strategy, which means that we continue to make progress on applying new technologies to the markets, both in acquisition and in processing. We're in the forefront of the digitization of our industry and excited about the opportunities coming out of this. Finally, we see great progress in the diversification strategy, and the acquisition of 4C is just one of many initiatives that you have either seen presented today or will be announced over the next few months. We cannot really do much about the market short-term. Long term, however, we remain convinced that oil and gas will remain about half of the energy mix, even in 20 years from now. You will still need to find more oil to satisfy this demand, and seismic is the only way to help you find it. I will now open up for questions and refer back to the operator who is facilitating. Thanks.

Thank you. Ladies and gentlemen, if you do wish to ask a question, please press 01 on your telephone keypad now. So that is 01 to register for a question. There will be a brief pause while questions are being registered. Please hold for the first question. Our first question comes from the line of Christopher Muller-Vakin from Carnegie. Please go ahead.