Transportadora de Gas del Sur SA TGS

Welcome to the presentation of TGS Q1 2022 earnings release. My name is Christian Johansen. I'm the CEO of TGS. And with me today, I have our CFO, Sven Burr Larsen. When we reported our Q4 numbers, About three months ago, I saw some analysts who were saying that the body language was pretty positive, the management body language was positive. So in that regard, it's great to be here physically and see all of you and have you monitor our body language even closer. But I think it's really good to be standing here and also have very good results that support our positive body language. And I will obviously come back to that after referring you to the forward-looking statements that you can read after the presentation. And the highlights for the Q1 of 2022 is that we had very strong late sales. We had late sales of $70.5 million, and that compares to about $21.9 million in Q1 of 2021. The total revenues, and keep in mind we're referring to IFRS numbers now, but the total revenues were $132.2 million. That compares to $142.4 million in Q1 of 2021. And that's obviously due to lower what we call point-in-time recognition of early sales. It's the early sales that makes up the difference there. But as you see, the late sales were really strong. know it's going to take a little bit of time to get used to our new reporting standards but this is something we're obligated to to follow so in that regard i just ask you for a little bit of patience and then after a couple quarters i think we're all going to get used to that the new way of reporting our numbers But just as a comparison to the way we used to report when we called it segment revenues, so we call it POC revenue now, and that was $114 million for the quarter, significantly above the consensus at the time when we reported the numbers. And that also compares to $75 million in 2021 for the same quarter. significant growth regardless of whether you look at our pure late sales number or whether you look at what we call the POC revenues. A very strong quarter for TGS. The backlog is about $293.3 million at the end of Q1 and compares to about $334 million at the end of Q4 of 2021. We had another quarter of strong order inflow. We actually had $91.1 million of order inflow. This is a number that is going to continue to be quite important to monitor going forward. So order inflow and late sales, probably the two key components in terms of how you look at the market. If you have a combination of strong order inflow and strong late sales from existing library, that's clearly very positive signs for our business. And the good thing here is that we have two quarters in a row now where we see a positive trend in both those numbers. In that regard, there's reason for the optimism from management that you will see today. We continue to have a robust financial situation. We have a net cash of about $216 million, which puts us in a great position to continue to pay a quarterly dividend. Our dividend now is 0.14 per share, which equates to about $16 million. In addition to that, we also did buybacks of about $2.7 million in the quarter. So our capital allocation strategy stays firm. You will continue to see a very competitive dividend from TGS. The size of the dividend, what we usually say is that we want to keep it at today's level or even grow it. And it all depends on alternative investment opportunities. Those investment opportunities may be new projects that would typically be the first priority. But then, as you know, we're also looking at M&A transactions. And in particular, that will be in our new energy solutions business, which I will come back to later in the presentation. So again, I think there is reason to be positive to the market. You've probably seen a lot of statements from some of the integrated all-service companies such as Schlumberger or Halliburton and other companies who are even broader in terms of their exposure to the all-service industry, but I think when you hear words around super cycle or a new cycle coming up, this is something we definitely recognize in terms of our discussions with clients as well, is that we are moving into a much more positive market. And we saw that starting in November last year, and we continue to see the evidence of a stronger market going forward. So that makes us obviously optimistic about the future after two very, very challenging years, both for TGS and for the entire industry. I'll touch on the operational highlights before I hand it over to Sven Berger who's going to cover the financial section and then I will come back and talk a little bit about the outlook and the reason for our optimism going forward. So in Q1 2022, we had these multi-client operations. I'll start on the western side and in the US Gulf of Mexico, where we had a survey called Engagement 2, which is an OBM survey in the US GOM. This is close to 4,000 square kilometers, where we use the underlying WASP data to produce even better images by using ocean bottom node technology. The data acquisition completed in March of 2022, and our final product there will be available for clients in Q3 of 2022. So this is just another extension of our OBN programs in the US Gulf of Mexico. Looking forward, there is obviously a little bit of uncertainty about what's happening in the US GOM. We have less clarity on the permit situation than we used to do, and we definitely have less clarity on the late sales as well, given that the lack of visibility on a new five-year plan and future licensing rounds. In that regard, I think it's positive to see that even the Democrats now are starting to fight on behalf of the oil service industry or the oil and gas industry. So as late as two days ago, I saw a copy of a letter sent by four senators from the Democratic Party to Mr. Biden, where they really encouraged him to get back on track in terms of future lease sales and coming up with a new five-year plan. So there is a great push now in the U.S., not only from the Republican side, but also from the Democrats in terms of finding a solution to the upcoming energy crisis also in the US where gas prices are now in California reaching six dollars per gallon and Houston when I left is about five dollars per gallon and keep in mind that Americans drive much more than what you do here in Norway so this is becoming a significant burden for the American society. That inflation is definitely going to put pressure on the midterm elections coming up in November. If you go further south, Suriname is a project, a phase one, comprises of 11,100 square kilometers. And this is a great potential. We see great potential for continuing that in more phases. Suriname is one of the hot countries in terms of exploration right now. driven by a recent discovery by Total and driven by obviously the great exploration success that you see in Guyana which is pretty much next door. So this is a very hot area as we speak and if you look at the two continents with South America or Latin America and Africa and you put those two continents together you see that on both sides of the margin there is really exciting exploration potential driven by recent discoveries in Namibia and recent discoveries in Suriname and Guyana, of course. So this is really where a lot of the exploration spending will come over the next couple of years. This is actually the reason why we, or some of the reason why we acquired Spectrum back in 2019. Spectrum had a pretty good database and very complementary to the TGS database in this area, and now we see that area is really picking up, which is good. Moving to Red Sea. Red Sea phase one comprises of 7,800 square kilometers of long offset 3D data. This is a project that we completed in early April and we're doing this together with Schlumberger. And phase two, which we were happy to announce just a few months ago, comprises about 5,000 square kilometers and we started that in April. So the final data for both these phases will be available sometime in the first half of 2023 and late 2022. So another example of an area where you have a good petroleum system and you also have a population rich country nearby, which means that there are strong drivers for future exploration in Egypt. So you'll probably see more activity there going forward as well. Moving further east, we have Sarawak 3D. This is another relatively big 3D where we're doing in partnership with PGS and Schlumberger. Phase one is about 8,600 square kilometers, and acquisition of that will be completed in Q2, and then final data available sometime towards the year end of 2022. Another project where there are possibilities for future phases and I saw some analysts were discussing this morning or were highlighting that they were a bit disappointed about the lack of investment growth or new guidance in terms of higher investments for 2022. all i can say about that is that a lot of these projects i mean we're in the first phase or second phase and typically when we call it phase one it means that we have some expectations of a phase two or a phase three and i think i think you just need to follow the situation and see you know when when and if we get further funding for projects like this then obviously we wouldn't be in a position to say that there is upside to our investment guidance but Right now, there is still a bit of uncertainty related to the timing of that and the timing of client commitments. But in general, we feel quite comfortable about the situation. So that's kind of the background why we didn't do anything with the guidance now, but also the background why that may still happen during the next months or quarters. You also see on the right hand side that we have a lot of interesting reprocessing projects. And I think if you look at the location of these reprocessing projects, they kind of fit what I talked about, the combination of a good petroleum system where you have seismic data, but also near places where you have rich populations. That's really the the golden formula right now in terms of where you will see exploration spending and you see countries like Indonesia, you see India, you see Malaysia, you see Australia, they all fit that kind of characteristics of population rich countries nearby a good petroleum system and that's where you will see a lot of our spending going forward. We also announced a new project this morning in Canada. I think a lot of you were disappointed, and so were we, that we didn't get the government funding from the province in Newfoundland and Labrador to our new programs for 2022. And we're therefore extremely happy to see that clients are still backing us in Eastern Canada. So this is a South Bank Phase 2 3D. New acquisition that we do ahead of the next licensing round coming up this fall and it continues to build this east coast Canada library that together with PGS we have built over more than 10 years and where we see great results for many years in Canada. This is a good petroleum system and this is an area where probably one of the last frontier areas where you will still see a lot of activity going forward. Very happy to announce this project this morning and gives us more clarity too in terms of our summer season and future activity there. Energy transition provides great opportunities for TGS. We've talked about this in the past. I'm just going to give you a little bit of a highlight in terms of where we are in terms of our strategy. So our strategy is to become a leading energy data and intelligence provider across the energy industry. It means that we're not only going to be exposed to oil and gas, but we're going to be exposed to geothermal. We're going to be exposed to CCS and and even solar and wind are on the radar of things that TGS wants to pursue and where we want to provide data to those industries as well. The reason for that is number one, that these industries need, with an exception of solar, these industries all need subsurface data and knowledge. Number two, we see fantastic growth going forward and I will come back to that when we talk about the outlook for 2022 and further out. it will be a combination of inorganic and organic growth in terms of the inorganic growth we're really pleased about what we've done so far in terms of the what we call the wind axiom which is kind of a key insight platform for offshore wind development so this is data and insight that we provide to the offshore wind industry and and make a decision easier in terms of where to be bidding which is obviously going to be a great industry going forward but also give more insight in terms of after you get the award and in terms of where you're going to put your installations etc. So this is something we are very proud of and something that we started marketing to clients quite recently and we see great results already in that regard. We also had the acquisition of 4C that we did last year and we see the growth story continues there driven by a fantastic market and a growth that the offshore wind industry is growing at multiples now that we haven't seen in oil and gas in many, many years or even decades. So that's a quite interesting story to be part of for TGS as well. We also see growth opportunities within CCS, so carbon capture and storage. This is probably a bit further out in terms of where you will see the results, but TGS will definitely target growth in both wind, possibly solar as well, but that will be through acquisitions, and then geothermal offshore minerals and CCS. That's really where the key focus is going to be for the future. Very proud of our leading ESG performance, and this was highlighted on the 6th of May further, when TGS was included in the OBX ESG Index. This is together with 39 other blue chip companies listed in Norway. And these companies, what they have in common is that they're demonstrating best ESG practices. And it's something that has been, it's more of a... For TGS, this is not like a tick-off-the-box exercise. This is about a really, really important part of our culture. We really believe in ESG. We really believe that not only are we going to be a company that is going to be around for many decades from now, but we're also going to be an attractive investment target for you guys. And we're going to make sure that we operate as good citizens. And we have a lot of internal priorities that we are proud of. You know, we've seen the number of or the proportion of women versus men grow quite significantly. This is something we have focus on. We have focus on a diversified workforce. And then I think the oil and gas industry for many, many years have been pretty good on the S element of ESG, where obviously we've been operating in countries that you have a living standard that is far, far below what we see in the Western world. And obviously we've been helping out citizens in countries all over the world in terms of economic growth and welfare. So something that is important to us and we are in that regard very proud of all the recognitions we have been getting over the past year or so. With that I'm going to pass it over to Sven who's going to go through the financials and then I will be back talking about the outlook in about 15 minutes. Thank you.

Thank you Christian. Good morning, everyone. Good to see you here. Yeah, as we talked about in the Q4 presentation in February, we will discontinue the old way of presenting our segment numbers, where we use kind of a POC, percentage of completion recognition, of pre-funding and also sales that were committed during the work in progress phase. So one of the key changes now is that we have changed the definition of late sales whereas we previously defined late sales as all sales that were committed after we commenced the project. We now define it as all sales committed after the project is completed. So it's kind of pure vintage sales. And then we have lumped that part of sales that belongs to the project phase together with pre-funding, and we now call that early sales. And in IFRS, that revenue stream is not recognized on a percentage of completion basis. It's recognized when that particular project is completed. So it will be quite lumpy and volatile, but we will try to give you some guidance and indications on when to expect these early sales to be recognized, as you will see in a later slide that Christian will cover. Then on proprietary sales, there is basically no changes. So proprietary sales is mainly related to processing work that we do directly on behalf of the customer. And it's been recognized on a percentage of completion basis. And that's the same in the old segment reporting scheme and in the IFRS scheme. And then we have done some practical changes to the cash flow statement and new segment disclosure, which is now obviously pure IFRS. So you can read through that on your own. And then we have, since we have changed kind of the, to start focus more on the IFRS figures, we've also introduced some new alternative performance measures in addition to the ones we had from before. So we now, as Kristin said, focusing a lot on contract backlog and contract inflow. And we are also, at least for a period of time, going to give you the old segment reporting number. We now call it segment reporting revenue number, sorry. We now call that POC revenue. So that is the revenue as we did it before with a POC recognition of the revenues that belongs to projects in the WIP phase. So hopefully that will give you a good picture of the underlying performance of the company still. Then I go into the normal content of the financial part of the presentation, and we start talking a little bit about operating revenues. And again, now this is purely on IFRS basis. So early sales revenues on the top left-hand side, which is now recognized at the point in time when the projects are completed, came in at $58 million in this quarter. As you can see from the chart, it has been quite lumpy in the past and it's going to stay that way going forward. So, for instance, if you compare to the first quarter of last year, you'll see that we had $117 million as we had several larger projects being completed in that quarter. Moving to late sales, we had really strong late sales performance in the quarter, 70 million, which is more than three times what we had in the same quarter of last year. What we are really happy about is that we regard the quality of the number to be pretty high. It's pretty well spread out, both geographically and on customers, and we're also happy to see that a lot of late sales are related to what you can characterize as frontier areas. So really, really good momentum in Q1 in that respect and a very encouraging development. Proprietary revenues are back to a more normal level. As you may remember, in Q4 we had one seismic project that parts of it were characterized as proprietary revenue. And this quarter we're basically back to more or less 100% related to the imaging work we do on behalf of customers. And this is also the kind of run rate you should anticipate going forward. Maybe even a little bit lower than what you see in this quarter. All in all, this gave us total revenues of $132 million, which is, despite the strong late sales, is actually lower than what we had in the same quarter of last year due to the point-in-time recognition of early sales as discussed. Then focusing on our operating results and cash flow. First on the operating expenses on the top left-hand chart, $27 million in the quarter. Here we have adjusted for a write-off of withholding tax credit. So you can see it's underlying on the same level as in Q4, but it is a little bit higher than the run rate you saw during 2020 and also the early parts of 2021. And that is related to the result-based bonus scheme that we run in TGS and have been running for 30 years. So fortunately, we're back in profitable territory, which means that the employees get bonuses, and that is the reason for the increase. So let's hope it stays that way. Then moving to amortization and impairments, $62 million in the quarter, so we recognize no impairments in this quarter. The $62 million consists of $36 million of straight line amortization of the vintage library. Whereas 26 was accelerated amortization, mainly related to the early sales. So the accelerated amortization will jump around more or less in line with the early sales. And it will be also then fairly lumpy going forward. This meant, as I said, that we are back in positive territory in terms of profits, $34 million in operating result in the quarter, as you can see from the chart on the bottom left-hand side. Free cash flow, $31 million. It's a little bit weaker than what you probably normally would expect in a Q1. And the reason for that was that we had exceptionally strong cash collections in Q4. So some of the cash that we would normally collect in Q4 was collected in Q1. And if you study the balance sheet, you'll also see that the payables were related to vessel contracts were down in the quarter. So we also paid a little bit down on payables. Normally obviously Q1 is a strong cash flow quarter in seasonal terms since we quite often collect the strong sales that we normally experience in Q4. Then going more into detail on our multi-client activities, the operational investments were 45 million dollars in the quarter and they were mainly related to the three projects that were in the data acquisition phase during the quarter. So that was the Suriname project, it was the Red Sea project in Egypt and the Sarawak project in Malaysia. And then we had obviously some investments related to ongoing processing and reprocessing activities on top of that. The guidance that we gave on investments in the previous quarter is still valid and also the distribution of investments as we indicated back then is still valid. Looking at the net book value, so bear in mind that this is now the IFRS definition of net book value, which is always going to be higher than the old segment definition of net book value. So we had $688 million of net book value of our library at the end of the quarter, so it's down compared to Q4, simply as we amortized more than we invested. Bear in mind that we expect this to also increase, or the net book value to decline even further in Q2, because we expect a couple of large projects to come to recognition in Q2, which means that we will have relatively high accelerated amortization recognized in the quarter, which will mean that probably amortization is going to be considerably higher than investments also in Q2. Then, on the bottom left-hand chart, you see on the blue bars, you see the historical cost of the different vintages that we have. And the white diamonds represents where the net book value of those vintages sit now compared to the historical cost. So as you can see in IFRS, you don't do amortization. You do very little amortization as you go during the project phase. So the WIP part of our library will always make up a more substantial part of the total library in the IFRS accounts, as you can see on the chart on the bottom. on the bottom right where you see that the WIP accounted for 53% of the total library size at the end of the quarter. What you can also read out of that chart on the bottom left hand side is that we had as much as 27% of our sales coming from older vintages and that's obviously related to the strong late sales that we saw. You also see that we have very little book value left on these vintages, which means that they are extremely profitable and we are quite encouraged by that development and it's good to see that sale of all the vintages keep up. That's a very important part of our business model. Then to the income statement, we've covered the different categories of revenues. So we had total revenues of $132 million. We had personnel cost of $17.5 million, including this bonus that I talked about. And we had other operational costs of 12.4, including this withholding tax credit write-down that we did in the quarter. That was roughly $3 million. This gave us an EBITDA of $101 million, which is slightly lower than what we had in the same quarter of last year. Straight line amortization of 36, accelerated amortization of 26, depreciation of 5 gave us this operating result, which is just below $34 million. We also, in the financial expenses line, we have a bad debt provision that we made in the quarter of 2016. just shy of $3 million, which is included there, which gave us our result before tax of $28.3 million. Subtracting tax cost of 7.4, we ended up with net income of 20.9 compared to $13 million in the same quarter of last year. This corresponds to an earnings per share of 18 cents. And to the balance sheet, not very much to talk about here, other than noting that it remains very, very strong. $215.5 million of cash and no interest-bearing debt, which puts us in a very good position to continue to invest profitably going forward. We had 96 million dollars of cash flow from operations in the quarter. Cash flow from investments were 70 million dollars and we paid out dividends of 16 million dollars in the quarter. We bought back shares worth of 2.7 million dollars which gave us net cash flow of 22 point or 23 million dollars actually and this resulted in this cash position of No, sorry, we had cash flow from finance of minus $23 million and the net cash flow was more or less zero, which gave us more or less the same cash level at the end of the quarter as we had at the end of the previous quarter. Then the board has resolved to continue to pay a dividend of 14 cents as corresponds to 1.36 Norwegian krones following the strengthening of the US dollar. The next date is one week from now on the 19th of May and the payment date will be on the 2nd of June. So by that I leave the word back to you, Christian.

Thank you, Sven. And let's talk about the market outlook. Obviously, there is a little bit of uncertainty about the timing of this, but we are very pleased to see progress on the five foundations for recovery, as we call them. And I will go through them one by one. So number one is energy demand continues to rise. So whether we like it or not, energy demand continues to grow at the level of more than 1% per year. Historically, it's been growing at 2%. It's probably going to slow down to around 1%, but it's going to continue to grow. And the fact that we're getting much more efficient in terms of energy use is compensated by the fact that the world is growing, population growth and obviously the increase or the fighting for increased welfare among nations in, for example, Africa. We also see a significant underinvestment in oil and gas and if you look at the period from 2014 to 2020 or 21, the spending on exploration dropped by about 75%. So you see now a number of years in a row where you see very low non-sustainable levels of exploration spending and this is obviously coming back to hit us now. The third thing is that we see exploration success. It's probably one of the key drivers to exploration spending in the future is to have success. I mean, if you spend a lot of money on exploration but you don't find anything, then obviously you're going to give up. What we see now is that during the month of February, we had three major discoveries, two in Namibia and one in Suriname. We've seen a significant increase in interest around those two areas. But not only that, we also see interest in other areas along the same margins because of that exploration success. So exploration success drives future spending. We also see improving licensing round activity. We have almost weekly contact with a number of governments in Africa, for example, and we see countries now that haven't had lease sales in a long time. We're now planning to do future licensing rounds to attract more international interest for their basins. And last but not least, these four drivers obviously drive the fifth one, which is increased E&P spending forecasts. You've probably seen that E&P spending forecasts that were announced in September, they were revised again in December, and then some of them have even been revised in 2022. So all these five factors point to a better market for a company like TGS going forward, and that's part of the reason for our optimism in terms of the future for both seismic but energy data in general. I'll go through each one of the five foundations, and I'll start with the first one, which is one of my favorite slides in terms of really explaining what's going on in the world right now. So this is a 150-year history of energy demands, and it just shows that we as human beings are addicted to energy. Look at the growth rate you've seen from 1950 to 2020, and look at how that's going to play out going forward. If you look at coal as an example, how long have we been talking about cutting the use of coal and reducing the use of coal? The fact is that, as you can see from this graph, number one is that coal is still a significant part of the energy mix. Number two is that it's actually flat. It doesn't show negative growth. And we've been focusing on this for more than 10 years. And the fact is that in China in 2021 was a record year for coal production. So we got a long way to go. Second one is oil. We're talking about getting rid of oil, and we're talking about a negative growth in oil production going forward. Well, the fact is that in 2030, we're probably going to see demand for oil at around 107 million barrels per day versus 100 today. It's going to continue to grow. It may not grow as a percentage of the energy mix, but it's going to grow. The absolute numbers are going to continue to grow. Gas is going to grow by an even higher rate. And the reason for that is that gas has now been defined as a transition fuel. And gas is going to be the key to reduce coal production in the future. So we're going to see probably double digit growth in terms of gas for the next decade or so. And then if you look at some of the renewables, I mean, the first thing that really becomes evident from this graph is that they're extremely small. If you look at their portion of the energy mix, they're just very, very small. So despite the fact that we are very optimistic and bullish on the outlook and the growth estimates for, for example, wind and solar, the fact is that it's growing from a very, very low base. So this is going to take time, and as we say here as a conclusion to the slide, we've built a massive system over the last 150 years, and energy transition will take generations. And that's just a fact, and that means that we're still going to be around in decades from now, but we're going to have a more diversified business model, we're going to have a business model where we focus on where the growth is, But the growth is definitely going to come from gas and it's going to come from renewable sources and the good news is that they all need energy data. Number two, we've seen a significant underinvestment in oil and gas in the past. This bar chart or this graph is from J.P. Morgan and their energy report that they published about a week ago. And the conclusion of the report from J.P. Morgan is basically saying that the world needs about 1.3 trillion incremental energy investment by 2030. They expect oil demand to grow by around 10% by 2030 and gas by 18%. And by 2030, the demand growth, the energy demand growth, and this is all energy sources, will exceed supply growth by approximately 20%. And you all know what that means. That means the foundation of a very strong price for oil and gas in the future as well. So I think it's a good report that I encourage you all to read. What they say here, and it's quoted at the bottom of the left-hand side of the slide, is super cycle to play out as supply growth continues to lag demand. Current spend implies 2022 to 2030 average deficit of about 0.7 million barrels per day. So what it really highlights is that there is a significant need to continue to invest. And that will happen. And that will benefit a company like TGS. Exploration success. We talked about that and we talked about the three discoveries that we had in the month of February. We've actually had more after that, too. So Exxon has announced further discoveries in Guyana since then. That was announced on the 26th of April. And then it's also been a discovery announced in the in Australia as well in late March, where the Pavel Well, which is situated closely to the Dorado discovery that was announced a few years back, and which is based on a lot of TGS data in the area, by the way. But this is just driving interest for these basins going forward. As you saw from the previous slide I had, we're doing reprocessing activity in this area in Australia. We have a crew going on in Suriname as we speak. We have an existing database, probably more data than anyone else in Namibia, which is one of the hottest areas in the world right now. So it's just really good. This really sets the basis for our success going forward. We have data pretty much all over the world. And the good thing now is that with hopefully some increased exploration spending, you're also going to see success in terms of discoveries. And hopefully that's based on our data and it's going to drive demand for data going forward. Number four is improving licensing round activity. So I'm definitely not going to go through this in detail. But what it really says is that along this margin or transfer margin of Africa and between the continents of South America and West Africa, you will see a lot of activity going forward. The reason for that is, as I said, it's high population, it's a petroleum-rich system, it's recent discoveries in the area, and you have countries who really need the tax money that you can generate from oil and gas. So this is where you're going to see a lot of the activity going forward is the South Atlantic margin, dominated by countries such as Brazil, Suriname, Guyana, and then several countries along the transfer margin of Africa. Last but not least, increased E&P spending. So we saw analysts are highlighting the fact that E&P spending will grow by about 22% from 2021 actuals to 2022 guidance. So these are just based on guided numbers from from our biggest clients. But the positive thing is that since then, we've actually seen a revised guidance. This happened just quite recently, where you see an additional growth of 2% on top of this significant growth that was highlighted in the guidance for 2022. So very positive momentum in terms of forecasting for 2022, which is obviously good for the supply industry or for the service industry. In terms of the contract backlog and inflow, and Sven Berger talked a little bit about that, but this is probably the way you should look at our business going forward in terms of estimating what the quarterly results are going to be and the quarterly revenues. But you start with the contract backlog, and as you see, the contract backlog at the end of Q1 was about $300 million. And then we're telling you today that we expect to deliver about 40% of that in Q2, so 40% of the 293. That's what the estimates are showing us at current that we're going to be able to deliver in terms of pre-funding revenues or early sales. And then the late sales is obviously a wild guess. You know, we're not going to beat the numbers like we did in Q1 every single quarter, but we are quite positive to the outlook for late sales as well. So if you combine the two, you will see that TGS will continue to have good quarters going forward. So in summary, strong late sales, $71 million compared to 21.9 in Q1 of 2021. And as I said, we're still optimistic that we're going to be able to beat our last year's number quite significantly for the next couple of quarters as well. I have to say in that regard that the comparison is relatively favorable because 2021 was not a great year as you can see in terms of late sales. But we are getting more optimistic in terms of 2022, and we see that we have great demand for our data library. And the fact that we have such a diversified library as I highlighted in terms of where the exploration success is, is obviously evidence that what we've done in the past few years have been smart. Total revenues are 132. That's slightly down from Q1 of 2021, but it's obviously due to these significant pre-funding revenues or early sales that we had last year. POC revenues, so the number that you are more familiar to, is about 114. It was 75 million in 2021 of last year. Backlog at 293, a strong order inflow of 91.1. And as I said, the combination of late sales and order inflow, those two numbers are really, really important in terms of what you should be highlighting on in terms of how is the business doing. Robust financial position. We have net cash of 215. As Sven Berger said, usually Q1 is a really strong cash flow quarter. I think in this regard, I expect Q2 to be a quite strong cash flow quarter too, because we had very strong late sales in Q1. So in that regard, we are quite optimistic that the net cash position will continue to be very strong even after Q2. Quarterly dividends, yes, we are committed to that, so we're going to continue to pay that. We announced the buyback program last year, where we pretty much finished up that with another $2.7 million in Q1. And we see an improved market condition and makes us optimistic for the remainder of the year. So with that, I want to thank you very much for the attention. I want to open up for questions, and I will ask Sven Berger to come up and help me on that. Thank you.

Can you hear me?

I can hear you, but I don't think anyone else can.

Should I press something? No. Okay. Okay. Kim from SEB. If you start with this slide on showing kind of the backlog split on pre-funding. We haven't seen that before. Is there historically any upside to, if you're thinking about 40% of that backlog is for execution in Q2, is there historically any upside to that in early sales, or is that more or less covered by now and then

That number is pretty much covered by now. But where there is risk is probably more on the downside because this is very dependent on deliveries of data. So if we, for example, have a big project and we have some issues related to the final imaging of that project, then it could get delayed. And unfortunately, this is just going to lead to very lumpy quarters going forward. So that's why I'm saying order inflow and late sales is really the way you need to focus on in terms of knowing our business. So we're going to be guiding that on a quarterly basis and try to indicate where we think that number is going to be. But again, I just give you a bit of a cautionary statement in terms of there is sometimes a bit of downside to that based on deliveries.

And the majority of the service you will commence in 22 from now until the year end, that will probably 23, 24, right?

Yeah, that's the right way to look at that. You know, if we start a new project or a new acquisition now, then you're probably not going to see delivery of the data. Some projects maybe, but they're relatively small.

But you still may see that we do a sale to a customer of a project that is almost complete. That is not part of the backlog now, but that can be part of early sales later in the year. But we'll update you on that quarter by quarter, obviously.

And then just more on the quarter, very strong revenues, of course. And you say it's broad basis across several regions. And we also maybe see now that the vessel rates are starting to improve. Is this volumes that you're increasing or are you now able also to start to push prices? Typically or historically, we have seen that you can do some volume deals and negotiate. And then we had a down cycle where clients are very specific on what they require to buy and nothing more really. Has that changed now?

I think for Q1 it's mainly the activity level that has increased. But it's obviously, I think clients start to realize that prices will have to come up too. We have that discussion with clients almost every day now and I think there is a greater acceptance for the fact that the industry needs to survive. There is a greater acceptance for paying a slightly higher day rate on vessels. And again, that's going to result in higher pricing on multi-client data as well. So in general, that's a positive thing for us. And I think people ask me, are we ever going to get back to the good old days where TGS was reaching $1 billion of revenues? Well, the activity level is not going to support that. So you need significantly higher pricing. So we probably need, it's kind of a paradox, you probably need higher vessel prices in order to get there. And that's probably true.

And the last one on transfer fee potential next couple of quarters. What do you see out there? There's a couple of big deals that will be concluded during the next couple of quarters.

Yeah, there's a few deals that have been announced. And I would probably be stupid if I go out and give you some guidance on how that's going to go, because it puts us in a very bad negotiation position on those transfer fees. But I think in general, I mean, you would expect to have transfer fees and probably more transfer fees in 2022 than we had in 2021. I think there is good visibility on that, but every single transfer fee discussion is different and they're usually very tough. And obviously all companies take the position that we don't want to pay for data twice, right? And we point to the contract which says that multi-client data is not something you own. We actually own it, so you need to re-license the data. I think in general, yeah, we're quite positive that we're going to see transfer fees in the next three quarters. But the timing of that is very hard to say, because if we rush it too much and if we get desperate to get it in Q2, we may give away some dollars and we don't want to do that.

In terms of your bonus payments this year so previously you had this percentage of completion but with IFRS the numbers we're looking on the P&L is more reflecting what you did in 2021-2020 so for 2022 Will the bonus payments to TGS employees be based on IFRS, basically the old history? Whatever is the highest.

No, I'm kidding. It's purely based on the POC revenues. So that would be based on the 114 that were reported on the 6th business day.

Okay, great. And my second question is in terms of the ordering flow in first quarter, do you have any comparable numbers for what it was in fourth quarter last year and first quarter last year?

I think it's in the slide package. So you'll find it there on the slides.

Good, thank you.

I was just wondering, in terms of late sales and lead times on late sales, are you seeing any sort of change in lead times on late sales, i.e. is that sort of shortening in this type of market? And typically, what was it in the last year and what are you seeing now? I'm just trying to get a feel for how quickly clients are sort of calling you in.

Yeah, I think in line with a better market, you probably cut that lead time a little bit too. So if anything, probably a slight improvement in that, but not significant, I would say.

But what is it typically then? Is it sort of three months or six months or two weeks? I don't know.

It varies a lot. I mean, we close deals in Q1 that we've been working on since 2020. And we also will close deals next week that we don't know about today. It really varies a lot. Any other questions? I guess we may have a few questions from the web, so... We do, we do.

So, from... ABG, he has a question about, it reads, IFRS accounting basically means that reported financial figures are irrelevant and conventional valuation metrics like PE, EV to EBITDA, price book, EV book value of the library could be highly misleading. Do you have any view on how you think the market should look at valuation of TGS going forward? First of all, I don't agree with that assessment. I mean, it's not a huge change. It's the same revenues. We're not going to generate more revenues or less revenues, more profit or less profit than we do during the old kind of segment arrangement. So the only thing that is changing is the periodization of those revenues and that amortization, right? So it means that it will be more lumpy from quarter to quarter, but if you are a little bit patient and look on it on a slightly longer term than one single quarter, the volatility will be much lower, and I highly recommend you to continue to use those metrics, but on kind of longer terms. periods of time. And I don't believe that the market has valued TGS necessarily 100% on the previous quarter. So I think the market still will have sufficient information to put the proper value on the share.

I think if I can add to that, what we said is that order inflow, late sales, extremely important. That's really the two numbers you need to look at in terms of how is this business going to develop going further. And then the third one is obviously cash flow. And we've always been focused on cash flow at TGS. And I know a lot of you as shareholders, analysts are also focusing on that. And we want you to continue to focus on that. Yeah.

And then you have another question on OpEx and multi-client investments, whether those definitions are the same as before. And yeah, they are. And then he has another question on the guidance and on the multi-client investments. So it reads, on the subject of multi-client investments, you seem to indicate that there could be upside to your 2022 guidance of roughly $200 million. Is that the correct interpretation? Could you elaborate a bit on how you end up with multi-client investment guidance? Does your MC investment guidance only include projects where you have booked pre-funding, or do you include other projects in the guidance?

Yeah, I'm not sure whether I want to use the word upside because if the upside was very evident, we would probably change our guidance. But what I could say is that I think we would be disappointed if we're not able to invest $200 million plus. And whether that's an additional 10 or 20, it's hard to say. But I think we would be disappointed given the way we view the market right now if we're not able to invest more than what we said back in October or November.

And I guess it's fair to say also that the guidance obviously include all projects that are committed and where we have customer pre-funding in place, but it also includes certain leads that are not yet concluded.

Yeah, that's right.

And that seemed to be the last. No, let me see here. There is another one. And this is from Kevin Roger. Two questions. Can you give us a bit more color on where your late sales were located in Q1? Am I wrong to say that West Africa was a good part of it? And was it a positive surprise for you?

Not really. West Africa was good. But I think if you look at our late sales in Q1, it was pretty much good across the board, with the exception of U.S. Gulf of Mexico, where we definitely saw a weaker quarter than normal. And the reason, obviously, is a lack of lease sale and short-term triggers. So in that regard, it was pretty good all over. West Africa was good, absolutely.

And then he has another question, fairly similar to the one from Jon on multi-client guidance, but he also adds on what would be your flexibility in terms of investments and in terms of getting access to new vessels. Is that a limitation?

Yeah, flexibility is great on the financial side. I mean, we have, as you see, probably too much cash. We have 215 and we're probably going to have a strong cash flow in Q2 as well. In terms of the vessel market, there is availability on vessels. Yes, vessel rates are higher, but that's probably a positive thing for the industry and for TGS as well. So there is availability to do our projects, and we don't see that as a big concern, even going into the summer season. And then, obviously, as you know, after the summer season, you go into late Q3 and early Q4, that market is kind of opening up again. So I think nothing has really changed in that regard, and our view on that, we still have availability, which is important. Yes, Kim?

Just a last on Gulf of Mexico. What's your base case now? The old plan obviously expires in just a couple of weeks really. And we see indication that's nothing obviously happening in 22, probably not in 23. What are your clients telling you? I assume some of the larger clients may reallocate Expiration CapEx to other regions, but then you also have a lot of US-Gum focused players. What are kind of the latest on the Gulf of Mexico situation?

I think, as I said, I'm probably slightly more optimistic today than I was like a month ago or two months ago, because there is definitely some pressure now, even among the Democrats, that we need to sort out this energy crisis. And the best and most efficient way to do that would be to open up the U.S. Gulf of Mexico, which, by the way, has the second cleanest or lowest emissions in the world. So it's kind of a paradox. We think we don't expect to see a new five year plan in 2022 for sure. There is risk related to 2023 as well. But I think for us, I mean, we're still getting permits. It's just that they're delayed and it takes much longer than what it used to take. So, I mean, we're not giving up the fact that we could get a permit sometime in the second half of the year this year, which means that we could start a new OBN survey. That's kind of related to our guidance, too. Are we able to do a new OBN survey in the second half? Then, of course, our investment number will be positively impacted by that. So for us, it's more about, you know, how do you look at the market given that there is uncertainty around future lease sales? Are you willing to invest in a new OBN project, for example? And I think, yeah, the willingness is definitely there because we see that some of the key clients are, they take a long term view on the Gulf of Mexico. They believe, yes, there will be delays. There will be some risk related to whether it's going to happen in 23 or even 24. But it's going to happen. The Gulf of Mexico is too prolific. Petroleum system is too good to just shut it down. And we already see great examples, particularly in Europe, but you start to see the same in the US. And eventually that's going to play out as an opening up of the GOM again, we think. So we take a long view as well as our clients on that. Some of the smaller players may be impacted more. Some of the exploration-focused players who don't have current production in the Gulf of Mexico. But again, we're quite positive in terms of the long-term outlook there. And you will see when we get closer to mid-term that things are going to happen.

Christopher from SpidermanGuan. It's more a request than a question. I know that your finance and accounting department has worked doubled for many years now, but just a request to them, if it's possible. I just need one number. And that's the segment book value of your multi-client library. If that's possible to calculate, that would be a great help for the financial community.

That's going to be hard because we have discontinued all kind of bookkeeping below the revenue line on segment. So there is no amortization or anything. But you could sort of assume that the main difference between segment and IFRS is in the WIP part of the library, which we have indicated on one of the slides, what that value is. And then you can make some assumption about what you think amortization rate would have been on that and get to an approximate number. That's... That's what you could do.

I have no expectations. It's just a request. If it's possible, that would be great.

No, it's not. Thank you.

Thank you.

Then there are some further questions on the web that most of them have been answered already, but it's one from Osul Tveitred. Based on current market outlook, should we expect TGS to invest more than $300 million in 2023?

That's very early days, and I'm not going to make any promises about that today, but I think you will see a bit of inflation on vessel rates, which is going to help us get there. And our view on the market is that you will see increased activity level too, and then if you combine the two, then there is hope for growth, but I'm not going to comment on the number in itself.

Okay, that seems to be it.

That's it. So thank you very much for your attention today and hope to see you again after our Q2 presentation. And again, great to see you live and in person. And we hope to continue to do that. So thank you very much and have a great Wednesday or Thursday, I guess. Bye.