Transportadora de Gas del Sur SA TGS

Good morning and welcome to the presentation of our Q2 2023 results. My name is Christian Johansen, I'm the CEO of TGS and with me today I have Sven Burr Larsen, our CFO. Let me first take you through the forward-looking statements that you can read after the presentation. And then on my first slide, I have the financial highlights for the quarter, which starts with POC revenues of $241 million compared to $135 million in Q2 of 2022. And this is obviously partly driven by the acquisition of MagSize that we completed in January 2023. We had late sales of 63 million in Q2 and that compares to 97 million in Q2 of 2022. But as you remember, we had significant transfer fees in that quarter. So if you adjust for that, our year on year growth is still double digit for Q2 this year. And if you compare that to Q1, which was a rather disappointing quarter on late sales, our growth quarter by quarter is about 37%. We had POC early sales of $66 million. That's about twice of what we had in Q2 of last year. And then we had proprietary revenues of $113 million, where the acquisition business unit contributed with $107 million. A very good quarter for the former MagSize team, which is now our acquisition business unit of TGS. We had a strong EBITDA this quarter, $132 million compared to $103 million in Q2 of 2022. And this is partly due to strong cost control and it's also due to good realization of synergies from the acquisition of MagSize. So again, strong performance by the acquisition business unit. We had good revenue or top line growth. But on top of that, we also had strong profitability of MagSize. And as I said, we also have a good realization of synergies. So we're following our plans and we're actually slightly ahead of our plans with the integration process of MagSize. So very pleased about that. We're also pleased about the multi-client contract inflow, which was about $180 million this quarter. And finally, we have a POC backlog now, including acquisition of about $417 million. I will come back to some of these highlights later in the presentation. In terms of the operations, we continue to see strong multi-client contract inflow. So I think this slide addresses well some of the concerns that we've heard in the market due to slightly weaker late sales, particularly in Q1, but also in Q2. But the fact is that customers continue to commit exploration spending, both in mature and frontier basins. And I think you can clearly see that through our multi-client contract inflow on the right-hand side, where you see a very positive trend now all the way since the troughing Q3 of 2021. And this is 12 months trailing numbers. So we have secured several large multi-client projects, so pre-funding for several large projects in Q2 this year. And that also means that the multi-client contract inflow was 180 in the quarter, but 713 million has been secured over the past 12 months. So there is clearly a strong drive now through exploration spending. We see that through our multi-client contract inflow, which is probably one of the best projects measures on the overall activity level in the market. And some of these projects are going to go through. So we secured funding for a project called Engagement 4 in the US Gulf of Mexico. This is a long offset OBN survey covering about 150 blocks in the Western Green Canyon. And you can see that in the orange color on the map. This project actually represents the sixth OBN collaboration project with SLB. So you see all of these projects on the map there. And what you also see is all the areas that haven't yet been covered by OBN, which obviously over the next few years, you will see more and more surveys carried out by this strong collaboration. And the reason why we do that is that imaging benefits strongly from the utilization of something called FWI, or full waveform inversion, which is a proven technology breakthrough for both exploration and field development objectives. So the pictures that we get from some of these surveys in the U.S. Gulf of Mexico are far better if you compare them to the WASP data or the traditional 3D streamer data that we had back in 2010 to 2016. Finally, imaging of these deliverables are available in the second half of 2024, but we have a fast track delivered and available in Q4 of this year. And again, the project is supported by healthy industry funding. Second project I want to go through is Malvinas 3D. This is a phase three that we do of a multi-phase project in Malvinas in Argentina. It's about 7,500 square kilometers and this is new 3D coverage in the Malvinas basin as you can see on the map. The project represents a third phase of 3D coverage in the basin and this will expand our footprint to over 25,000 square kilometers of 3D in Argentina. So by far the largest player there in terms of data coverage. Acquisition is expected to commence in early 2024 and this project is also supported by healthy or strong industry funding. The next one is a 2D cube or a reprocessing project that we have announced in Brazil. This is in the equatorial margin of Brazil. It's a 2D cubed project. So what we mean by 2D cube is that we take big amounts or massive amounts of 2D data, stitch it together to create some kind of a cube, which gives you a very similar image to a 3D. And it's a very cost efficient way to do it. So you see that we cover about 286,000 square kilometers of data by doing doing this. So the final deliverables of this surveys are expected in Q1 of 2024 and again another project supported by good industry funding. And then last but not least, we have this Sarawak Phase 2 in Malaysia. This is a JV consortium with PGS and SLB. It's 6,800 square of new multi-client 3D data. It's being acquired in the North Lusonia province in Malaysia. Acquisition commenced in June this year and data is going to be merged with a lot of reprocessed legacy data in their region. So this is an area where the three players have been working together for quite some time and this is just another one of those projects that you see on the map to the right. So then a few words on the acquisition business unit. So again, we're very pleased about the performance of that business unit, both in terms of revenues, in terms of profitability and in terms of synergy, takeouts and realisation. So for the first six months of this year, we had 9% year on year growth in gross revenues. We had a 23% EBITDA margin, which compares to 16% in the first half of last year. And last but not least, we reported an EBIT of about $20 million versus only $1 million in the first half of 2022. And if you look to the right here, you see where the improvements are coming from. So if you build from the EBIT of $1 million that they had in 2022, you see that 13% of the EBIT improvement is driven by revenue improvement. And this was an important part of the rationale for the transaction is that we see that we can obviously help with the utilization. We can improve utilization of mag size going forward. And this is where we see some of the benefits. On top of that, we have OPEX improvements. So we have $8 million of OPEX improvement. This is coming from obviously synergies that we've realized as part of the transaction, which was part of the plan. And we've now taken out about 60% of the annual synergy potential already. So first of all, we increased our estimate for synergies to about $15 million per year. And secondly, we have already delivered on eight out of the 15. So very pleased about the transaction, very pleased about the integration of the teams and very happy that we have MagSize as part of our portfolio today. So that again leads to an EBIT year to date of about $20 million. And if we move on to digital energy solutions, and this is where we have a lot of the renewable activities of TGS, and you can see the picture of a LiDAR buoy on the right-hand side, and this is in the Utsira area of Norway. It's in fact the first deployment or the deployment of the first LiDAR wind measurement buoy in Utsira, following five successful deployments in the New York Bight area in the U.S., So it's an important milestone and this is something that we will continue to report on. You will see that we place a lot of these LiDAR buoys over the next few years. And again, that's going to drive a lot of the same activity in offshore wind as you've seen in oil and gas for many, many years. We go out and you measure data and you license data in the multi-client model very much the same way as we do in seismic for oil and gas. On top of that, we had 56% year on year growth in our 4C offshore business. So that's where we have a subscription based information and insight business through the company 4C offshore that we acquired last year. We also have a new version of PowerView asset management that we launched or predict or launched this quarter. And on top of that, we won a material contract for a large solar park in Denmark. So that business is also going the right way. Last but not least, we have a new cloud-based well data analytics platform launched in the quarter. And this is a comprehensive solution for optimizing well performance in our well data group that is based out of the US. So a lot of positives this quarter. And I'm happy to pass it over to our CFO, Sven Berlarsten, who's going to go through the financials of Q2. Thank you very much.

Thank you for that, Christian. And good morning to you all. So I will start by going through our revenues measured as percentage of completion first. Looking at the top left hand chart, you see our early sales, which were 66 million dollars in the quarter, which is essentially a doubling from the same quarter of last year. And this is, of course, driven by a significant increase in our customers which in turn improve their willingness to support new projects and new multi-client projects. So we're really happy with the development that we've seen in early sales this year and that we expect to continue to see in the coming quarters. Late sales revenues were $62 million in the quarter, although this is a little bit below our expectations at the beginning of the quarter. It does represent a 36% increase from the previous quarter. and also a double digit increase compared to the same quarter last year when you adjust for the significant M&A related transfer fees that we booked in Q2 of 2022. Proprietary sales came in at $113 million. This is, of course, a significant increase from last year when we didn't own the acquisition business unit or mag size. And the $113 million is, of course, as Christian already alluded to, driven by a strong quarter in our acquisition business unit. In total, this gave us POC revenues of $241 million compared to $136 million in the same quarter of last year. Again, when we didn't own the MagSize business. Proforma, comparing apples to apples, we would still have a... a growth year over year despite the, as I said, substantial transfer fees that we booked in Q2 of last year. Looking at the POC revenues by business unit, we look at multi-client and imaging together. On the top left-hand chart, we had $124 million, which is at level or slightly below what we had in the same quarter of last year. Digital energy solutions came in at $10 million this quarter. It's not as spectacular as we saw in Q1, but still it's a 34% growth compared to the same quarter of last year. So we're quite happy with the development in this business. On the acquisition business unit, we booked net revenues of $107 million. In addition, this business unit committed work on behalf of the group worth $7 million, which has been eliminated on the group accounts. So the total gross revenues in the acquisition business units were $114 million. And this is, in fact, the best quarter ever for our acquisition business unit and before that mag size when you exclude the system sales that mag size had in certain quarters in the past so again very strong performance by the acquisition business unit and this as we already discussed gave us this 241 million dollars in total poc revenues for the quarter focusing on operating costs, looking at cost of goods sold first, $63 million in the quarter. This is... accounts for 56% of proprietary revenues. So as we've discussed in previous quarters, the cost of goods sold is linked to proprietary revenues. So 56% cost of goods sold as percent of proprietary revenues, that's... better than where we expect to be. We normally would expect to be in the low 60s. So again, a very strong quarter by the acquisition business unit, good operational performance contributing to this. Personnel cost came in at $34 million in this quarter. We booked higher bonuses this quarter than we did in Q1. And we also had a certain one-off elements included in the personnel cost also in this quarter. On a forward-looking basis, we expect this number to remain at around 30 or slightly above 30 probably per quarter going forward. Looking at other operating costs, it came in at $12 million in the quarter, so a significant reduction from the two previous quarters. So this is a reflection of good cost discipline. We expect this run rate to remain at $15 to $20 million in the quarters to come. All in all, this gave us an EBITDA of 132 million dollars in Q2 of 2023 compared to 103 in Q2 of 2022. Looking at our amortization or POC amortization, the The straight line portion of our amortization remained fairly stable as it should, around $40 million. We booked POC accelerated amortization of $32 million in the quarter, and then we had a small impairment related to one particular survey of 2 or 1.6 million dollars in this quarter so all in all we ended up with total amortization of 74 million dollars in this quarter. Depreciation came in at 19 million dollars and this should be fairly representative also for the run rate going forward. And this gave us a POC operating result of 39 million dollars, which is slightly below the 42 we had in the same quarter of last year. As we already discussed, we booked significant transfer fees in our late sales in Q2 of 2022. And these sales are obviously quite profitable from a P&L viewpoint. and therefore we had a quite strong operating result in the Q2 of 2022. Looking at our multi-client investments and early sales rate on the bottom right hand chart there we booked 86 million dollars of multi-client investments in Q2 of 2023 and this is of course a significant improvement compared to the same quarter of last year. again a reflection of our customers' improved willingness to support new projects and their increased spending on exploration in general. The pre-funding rate or early sales rate rather in the quarter was 77%, slightly up from Q1 when it was 73%, which means that we have roughly 74-75% year to date in an early sales rate. And we expect this to increase significantly in the second half of the year. In terms of the investments going forward, as you've probably seen, we retain our guidance of annual full-year multi-client investments of about $350 million. In Q3, you should expect the investments to be somewhat higher than what you've seen in the $86 million that we booked in Q2. This page here shows the bridge between our POC revenues and our IFRS revenues. So we had, as discussed, $241 million in POC revenues in the quarter. And then we had $31 million of revenues related to performance obligations. met in the quarter or early sales booked in our IFRS accounts and then we subtract the POC revenues booked in the quarter and we end up with IFRS revenues of 206 million dollars this quarter. And this brings us to the IFRS P&L account as As already discussed, we had $206 million of IFRS revenues, cost of goods sold, personnel costs and other operating costs remains the same in IFRS and POC, which gave us... an EBITDA of $97.1 million compared to $197.3 million in the same quarter of last year. Last year, you may remember that we had a big early sales booked in our IFRS counts related in particular to the completion of the first phase of the Malvinas survey in Argentina. Straight line amortization, same in POC and IFRS, $39.6 million. Accelerated amortization, $13.7 million. Impairments, the same, $1.6 million. And depreciation, the same as in POC, $19.2 million. Gave us an operating profit of $23 million compared to $31.4 million in the same quarter of last year. Subtracting net financial expenses, we ended up with a result before taxes of 20.7 million dollars this quarter, compared to 33.5 million dollars in the same quarter of last year. You see there that we have a negative tax cost, tax income this quarter despite posting positive pre-tax profit. And the reason, the main explanation for that is currency movements. We have some intercompany balances between the different group companies where we post some gains and losses in the different companies depending on where currency movements are going. And these profits and losses are eliminated on the group accounts, but they remain present in our Norwegian tax accounts. So therefore, we have this strange tax situation. cost line this quarter. This meant that we ended up with a net income of $22.6 million compared to $25.4 million in the same quarter of last year. This translated into an earnings per share of 18 cents compared to 22 cents in the same quarter of last year. Then going to the balance sheet you'll see that we continue to increase our multi-client library due to the significant increase of multi-client investments. So our multi-client library were at 687.3 million dollars. at the end of Q2. You should also note that we had a significant build-up of working capital in this quarter and you should also note that the interest-bearing debt that we inherited from MagSys, the 45 million Dollars have been refinanced and are now classified as non-current liabilities as opposed to other current liabilities in our Q1 report. Apart from that, it's once again a pleasure to conclude that our balance sheet remains very strong and very healthy. Looking at our cash flow, we had net cash flow from operating activities of 56.4 million dollars. This has of course been brought down by the working capital build-up that I talked about. We continue to invest heavily both in our multi-client library but you will also note that we have fairly high investments in other tangible assets this quarter of 17.2 million dollars and this is related to a node expansion program. We're building, adding another roughly 5000 nodes to our inventory. Going forward you should expect investments to come or the capex, the investments in tangible and intangible assets to come a little bit down and we expect to book for the year as a whole roughly 40 or hopefully somewhat below 40 for the year as a whole. And then, of course, as always, we did the dividend payments in the quarter and we had some lease liabilities or payment of lease liabilities booked, which all in all gave us a negative net cash flow, very much as expected, $64 million in this quarter. which meant that we ended the quarter with a cash balance of $144 million. Going forward you should expect the cash flow to remain flattish or somewhat slightly negative in Q3. We continue to invest heavily and we continue to build up working capital and then you should see a significant positive cash flow in the fourth quarter which means that we will probably end the year depending obviously on late sales development, of course, but probably end the year with a cash balance that is reasonably similar to the one that we had at the start of the year. Then dividends, the board has once again resolved to pay a dividend of 14 cents per share this quarter. This translates into 1.41 krona per share. The X date is 27th of July, one week from now, and the payment date is on the 10th of August. The way we determine our dividend normally is that we set a new dividend level in the first quarter of every year in February. And then your base case expectation should be that we maintain that dividend for the remaining quarters in that year. And then we set a new one in February 2024. So you shouldn't expect us to, or the next potential increase in dividend is probably in February next year. For that, I will hand the word back to Christian.

Thank you, Sven Burris. I'll talk a little bit about the outlook for the reminder of the year and obviously for the years following 2023. So I'll start by addressing some of the concerns we've heard out there in terms of a slightly weaker late sales for the industry in the first two quarters of the year compared to what the expectations were when we started 2023. And number one, I think we need to look back on Q4 last year, which was really good. And two quarters with slightly lower late sales doesn't really concern us all that much. And part of the reason for that is that we still see strong growth in exploration spending. We see, in fact, several indications that E&P companies are continuing to raise exploration spending in 2023. However, we see a little bit of a shift towards what we call the non-discretionary spending categories. And those are typically characterized by, you know, drilling, early sales and pre-funding for new commitments and, of course, infrastructure led exploration. So a little bit of a shift since Q4 where we, you know, favour some of these more non-discretionary spending categories. And if you look at that growth within these non-discretionary categories, we'll see, for example, offshore drillers, where revenues are expected to be up by 32% in 2023. We see MC early sales for the first half of this year expected to be up by 100% across the industry. And we see global OBN revenue growth expected to grow by 39% in 2023. So this inflationary pressure leads to a little bit of, you know, when all companies see that inflation, then they try to push out projects. We've seen examples from that even on the drilling and production side. But of course, the easiest piece to push would be the discretionary part. And typically you talk about older data and especially frontier data as being quite discretionary in terms of spending. So when they can push, they probably push on that the first. And that's probably the main reason why you see slightly lower late sales in the first half of the year for 2023 across the industry, not only for TGS. But again, we're not too concerned about this because when we talk to our clients, they say, They confirm that same type of story, but at the same time, they also confirm that they will take this into account when they budget for 2024. And we will see the benefits of the 2024 budgets already in Q4 of 2023. So again, we think this is temporary more than permanent. But the fact is that there is inflationary pressure across the value chain. And some of that inflationary pressure leads to pushing out some of the discretionary purchases. And that's what we've seen in the first half of 2023 for the entire industry. If we look at the acquisition activity plan, and I think this backs up the previous slide quite well. I mean, this is a fantastic backlog in terms of activity plans. So you see that we're pretty much filled up for the entire year. Yes, there is a little bit of a gap in activity. North and South America on the Z Explorer 2. But again, that project, we're either going to put the crew on a multi-client project or we are in advanced discussions with the client on a proprietary project. It's a good problem to have. We're going to do either one of these two projects. Projects are going to be in the same areas. It's going to be limited streaming for that. So in all practical sense, this is a very strong activity plan where we feel like our utilization is going to be as good as it gets for 2023. So the work has already been started now to fill up the 2024 pipeline as well. And as you know, in 23, we were in this situation that we had to give a lot of the multi-client work from TGS to other suppliers because MagSize or the acquisition business unit that we have internally is basically full. So we're planning now for 2024 as we see 2023 is well under control. And this is part of the reason why we have stronger profitability in our acquisition business than what we had last year. We'll look at the multi-client activity plan. I'm not going to go through this in detail. But what you can see from the plan is that we're very much front end loaded in terms of our investments this year. So you see less in Q3, although Q3 is going to be relatively high. But then Q4 is tapering off, as we usually see with our business. But again, the important thing is, number one, we are going to invest more than our competitors. our initial guidance of 350. So we have already raised that guidance to say that we're going to be above 350 for the year. And secondly, we're going to be front-end loaded, meaning that cash flow is going to be back-end loaded. So again, as Sven Burr has said, in Q3 and Q4, or particularly Q4, you will see that cash flow will start to come up such that we should be in a position by the end of the year where we have a similar cash balance to what we had when we started the year, despite buying mag size for cash and on top of that paying a healthy dividend to our shareholders. In terms of the contract backlog and inflow, we had $198 million of contract inflow. Q2 was a very strong quarter in terms of inflow for our multi-client business. It was less strong for the acquisition business, but we are in advanced discussions with multiple clients on the acquisition side now. So over the next few weeks, you will see new announcements and you will see that we we start to fill up that backlog for 2024 and for the remainder of 2023. So things are well under control in that area as well. And that means that we have a contract backlog now of more than $400 million, consisting of a POC multi-client backlog of 232 and an acquisition backlog of 185. And as I said, we expect that part of the backlog to increase quite substantially over the next few weeks or months. And then on the right hand side, you see the timing of the expected recognition of early sales backlog. So this is obviously helpful for our analysts to understand how much of our revenues in the next couple of quarters will come from early sales and what remains for the late sales. Licence round activity continues to be healthy. I'm obviously not going to go through all the licence rounds that we expect to see in the second half of 2023 and early 2024. But what we can conclude from this is that there is a lot of activity, particularly in Latin America, where we see areas such as Brazil, Suriname, Uruguay and Argentina, areas where TGS has a lot of data and we see quite a lot of activity in terms of licensing new areas in that region. We see Africa as well. There's a lot of countries in Africa who are now really coming back to their regular licensing round regimes and taking advantage of the increased exploration activity across the world right now. And then we probably see the highest year-on-year growth in Asia-Pacific, where there's a lot of activity right now. You see areas like India, Indonesia, Malaysia, Bangladesh with expected licensing rounds coming up as we speak. And it's an area that you see more activity from TGS as well as a result of the increased activity levels. overall a very healthy license round activity and we're back to the level that we saw pre-COVID in terms of activity across the board which is good to see of course. And then as a summary, we had total POC revenues of $241 million in a quarter, compares to $135 million in the same quarter of last year. We had strong profitability with an EBITDA of 132, compares to 103 in Q2 of last year, and with particularly strong contribution from our acquisition business, which we are obviously very pleased to see. So again, strong performance by that business unit, both in terms of revenues, profitability and also synergy realisation as we have promised the market. We see continued growth in exploration spending for the future. And you've seen that through some of the slides that we went through. Yes, there is a slight shift from discretionary to non-discretionary activities. We think that's temporary. And the good thing is that those non-discretionary activities category see very healthy growth compared to the previous couple of years. So again, TGS is well positioned to benefit with a leading position in all segments and a far more diversified business model that you've seen in previous years. So with that, I want to thank you for the attention. I want to ask Sven Burra to come up again and address some of the questions that you may have for Q2. Thank you very much.

Yeah, and you can, of course, post questions on the web. We have a couple of questions from Jono Leisen from ABG. First one, could you comment on the factors that will impact your 2024 multi client investments, please? I know it's still early, but are we likely to see multi client investments up further in 2024? Do you have any multi client investment commitments for 2024?

Yeah, I think it's still early days. I think if we were to look into the crystal ball today and see how the market develops, again, we think exploration spending is going to continue to go up next year. I think some early signs that we're getting from clients is that they will have healthy data budgets for 2024. Obviously, we took a big, big step up in terms of investments in 23. So you shouldn't expect to see the same type of growth. But I think it's going to be healthy. And I think my best guess right now would be that it would probably be in the same area because typically we invest early in the cycle. And that's why we increase our investments so much for 23. But again, very early days. So we don't want to give you a specific number right now.

We have one project that's committed and that's the Melvinas project that we talked about earlier in the slides that will take place in the beginning of 2024. The other question from Jon is regarding our wind measurement business. Could you please elaborate a little on the economics? e.g. how much does it cost to run a boy per month? Is it a multi-client model? If so, what is the pre-funding level? Who are the main competitors in this area?

Yeah, in terms of the cost of a LiDAR buoy, it's a few million dollars for a year. And the pre-funding of these projects are typically very much in line with what you see in mature areas for multi-client seismics. So they're typically pretty high. They're not 100%, but they're not too far off. Typically, we would have a payback time of about within a year or 12 to 18 months. We should probably be in the money on that and follow a lot of the same economics as you see in our multi-client seismic business. Key competitors are probably proprietary players. So basically, this is a new service that we offer where we basically take a proprietary business and turn it into multi-client and give a number of clients the benefits of shared economics. So I think that the key competitors, no one is really doing the same as TGS here. And that's one of the first mover advantages that we have to turn this into a multi-client business.

We have a question from Kristoffer Möllerlöken. Have you met your guidance for 2023 multi-client investments with the projects announced? Or do you expect to announce more projects going forward which will increase Q4 investment levels versus what the slide or slide 25 imply? We are pretty close to that number in terms of the commitments that we have. And we have a pipeline of further opportunities also for 2023 execution. We cannot promise anything, of course, but we have some opportunities. Then there is a question from Lucas Dahl from Arctic. Good morning. You provided arguments for the market still being healthy despite some slowdown in discretionary spending. What would be the two most tangible examples supporting your upbeat outlook?

Yeah, I think clearly one of them would be particularly in terms of Q4, seeing that late sales comes back as it usually does towards the end of the year. I mean, we had a really strong Q4 last year. We don't see any reason why it shouldn't be really strong this year either. So I think seeing late sales coming back would be one tangible example of that. And I think on top of that, to see a continued healthy development in terms of order inflow. I think that's been actually really good so far this year and we expect that to continue, but that will be another tangible example of a strong market.

Then there is Question from Mick Pickup from Barclays on the wind measurement. Is there a farm down or do new partners have to buy like a transfer fee? I can take that, Christian. The structure there is that when they are bidding in licensing round, these consortiums are very much formed up front, as opposed to in the oil and gas industry. So typically these consortiums have secured access to the data together. So you shouldn't expect the same type of transfer fee in the wind measurement business, but there are also some uplift structures if bidders are successful. Another question from Lucas Dowell is increasing inflation of services putting all companies on hold in terms of project sanctioning or leading them to adjust future budgets upwards?

It's probably going to be a combination of the two. I think you've already started to see some E&P companies who are putting projects on hold or they're pushing out projects. They obviously don't like the inflation. And if you look at the examples we gave on one of the slides, you see drilling up 30%. You see multi-client pre-funding up 100%, you see the OBN business up 30%. There's hardly any E&P company who planned for that when we started the year. So I guess the exploration budgets were up somewhere in the mid-teens, so let's say 15%, and then they see that inflationary pressure on top of that. So that has led to, number one, some delays in discretionary spending, probably put some projects on hold, And what we hear from some of the clients is that they cannot keep putting projects on hold. So they need to eventually increase their exploration spending and their budgets for 2024. And we're quite hopeful. We've heard it from a couple of companies that we met now that already have budget indications for 2024. And we're talking about a relatively healthy spending increase.

And then we have three questions from Olav Henrik Trent. The first question is on product innovation and competitive landscape. We can see significant investments in intangible assets and multi-client libraries contributing to an overall growth of non-current assets. Could you elaborate on these investments, their role in your innovation strategies and the potential for providing a competitive edge? In what ways are these investments expected to stimulate the company's top line growth and contribute to the industry's advancement?

Yeah, I think the question is probably related to some of the investments that we do in renewable areas. And if you take one step back and look at the background from this, I mean, TGS is a data company. We're actually extremely well positioned to provide data across the energy space and not only for oil and gas. We see healthy growth outlook in both wind and solar and energy. other renewable activities such as deep sea minerals or geothermal and obviously CCS will eventually get big. So we see that TGS is well positioned to grow our business in the future and also diversify our business more in the future by entering into these industries. And then you shouldn't forget that these industries are at a very different stage in terms of growth outlook and maturity. So right now, I think our key focus is on offshore wind, where we see very good short-term opportunities. We see healthy growth in our business. That's probably where we put most of our investment dollars right now. But then eventually that's going to change. We already have a solar business that is performing quite well. And we're looking at some of these other industries very, very closely.

Then he has a question on environmental and social stewardship. I think you already answered the first part of the question, which was about our strategies towards renewables. The second part of the question is, he writes, additionally, as a socially responsible corporation, could you outline how you aim to balance this new direction with your commitment to the current workforce, stakeholders and wider society?

Yeah, I think it's an important question. It's a good question, actually. I think this is something that comes all the way from the board in terms of we are gradually changing. I mean, the world is changing towards more renewable, for sure. At the same time, we think oil and gas is still going to be the majority of the energy sources, even in the in a couple of decades from now. So we continue to focus on our core business at the same time as we diversify our business into renewables. I think in terms of our employees, they're actually very happy to see that. I think we have an internship program in TGS where I just met with 15 new interns that came in this summer and they're extremely excited about what we do in terms of renewables. in terms of what we do, in terms of digitalization, in terms of how we apply AI and ML to our data business. So there's a lot of positives coming out of that also in terms of our social profile. So good question and I'm happy to confirm that we think we're doing the right thing, both in terms of the workforce, the stakeholders and the wider society.

And then there is a final question from Olav Henrik Trent on the outlook. The outlook indicates that exploration spending is on the rise and non-discretionary spending categories are becoming more prominent. How does TGS plan to capitalize on these trends to ensure sustainable growth in the future? In this context, could you also provide an overview of your acquisition strategies specifically related to promising new sectors or markets?

Yeah, I think in general, a lot has already been done. I mean, this goes back to a very active summer of 2022 when we made three acquisitions. And part of the reason for that is that we saw that TGS was becoming quite vulnerable in terms of having a very narrow focus on the frontier part of multi-clients. And in hindsight, we're extremely pleased about the timing of that because we saw that the industry was shifting in that direction. We don't think that's a permanent shift, but we put ourselves in a vulnerable position by not being stronger in particularly the ILX areas of exploration. So I think we've already ticked off part of the boxes that Olav is bringing up in his question. in terms of what we do for the future our acquisition strategy etc i mean obviously we cannot be too concrete on that but i think we continue to look for opportunities to continue to consolidate the seismic business we think that is needed on top of that we see a lot of interesting areas for growth particularly around renewables and and probably digitization of our business going forward but

And then there is a question from Kevin Roger from Kepler-Chevreux. You mentioned that late cells year-to-date has been lower than anticipated, but it does not appear to worry you for coming quarters. Excluding Transurface, would you say that 2023 late cells are likely to be above 2022?

And I want to give a guidance on that because it's a really, really hard number to predict. And it's probably the number in our revenue stream that is harder to predict than with the lowest visibility. But I think so far this year, we're pretty much in line with last year. Again, we had a growth of we had a double digit growth year on year if you're just for transfer fees in Q2. In Q1, it was probably slightly lower than the same quarter of last year. And then for Q3 and Q4, we don't see any reason why we shouldn't have healthy late sales. But again, don't want to start guessing too much on the late sales. All I can do is to promise that we do whatever we can in terms of getting our late sales up to your expectations.

And that seemed to be it.

With that, I want to thank you very much for the attention. Thank you for great questions and welcome you back to the Q3 earnings release later this fall. And in the meantime, have a great summer, everyone. Thank you very much.