Transportadora de Gas del Sur SA TGS

Good morning and welcome to TGS Q2 2025 results presentation. My name is Bart Steinberg, Vice President of Investor Relations and Business Intelligence in TGS. Today's presentation will be given by CEO Kristian Johansen and CFO Svendberg Larsen. I would also like to draw your attention to the cautionary statement showing on the screen and also available in today's presentation and earnings release. You can start typing in questions during the presentation and we will address your questions after management's concluding remarks. So with that, I give the word to you, Kristian.

Thank you, Bård, and welcome everyone to TGS's Q2 2025 earnings release. I'm going to hit the highlights right away and I'm going to start with two bullet points that probably are in the categories of explanations rather than excuses for what we would consider a relatively weak quarter. So the first one is we had multi-client revenues below expectations due to low library sales. And if you remember back to the end of Q2 of 2025, we had a rather weak and volatile macro environment where the oil price dropped from about 76 to 66 during the last 10 days of the quarter. That may have had an impact on our End of quarter sales. Again, it shouldn't be used as an excuse, but we definitely had lower than expected library sales. And as you all know, we typically make a lot of our library data licensing over the past or last seven to 10 days of any given quarter. In addition to that, we had contract revenues negatively impacted by operational challenges on one of our projects in Asia. And then we also had lower contribution from JV partners on multi-client projects where we typically have a 50-50 split between our JV partners. So all together we had total revenues of $308 million that compared to $381 million in Q2 of last year. We had an EBITDA of $153 million compared to $175 million in the same quarter of last year. That means that we actually had an improved EBITDA margin in Q2 this year compared to last year. It improves from 46% in Q2 of 2024 to 50% this quarter. We also had a positive free cash flow, free cash flow of $11 million before dividend. And we're also continuing to do business optimization, which means that we see lower costs. So we have cost-cutting initiatives on top of our synergy plan that we launched last year. And in addition to that, we're announcing today that we're also adjusting the vessel capacity to how we see the market right now, which means that we go down from seven to six vessels. And in addition to that, we're selling two of the stacked vessels. I will come back to that later in the presentation. Last but not least, we're maintaining a dividend of 0.155 per share, as you've seen in previous quarters as well. If we go to the business update and start with the data acquisition activity that we had in Q2, I'm not going to touch on every project here. I'm just going to conclude that we continue to have a diversified activity level in terms of both new energy operations, OBN contracts and multi-client and the same on the streamer side. It ranges from California and West and all the way to India in East. And you see a lot of activity this quarter, particularly in Norway and Northern Europe. And then you see activity in Brazil, Argentina and Gulf of America. I touch on some of these projects and start with the financials and start with multi-client. So we had multi-client sales of $137 million. That compares to $191 million in Q2 of last year. And again, not a great quarter for multi-client. And I think both we and the market were surprised by the low activity level that we saw in the last 10 days of the quarter. Again, some of that could be explained by lower or more volatility in the market overall with an old price that dropped by 15-20%. But again, shouldn't be used as an excuse. We're clearly disappointed about our library sales in Q2. Multi-client investments were 114 versus 92 last year, came in slightly higher than we expected. And again, this is due to partners and JV partners who elected not to take their 50% ownership. So as a result, TGS took advantage of that and we get a higher equity in some of these JV partner projects where typically we would have 50%. Now in the projects that we're doing in Q2, we have between 70% and 100%, which again may bode well for future earnings, but it hits our investments in Q2. So investments are higher and then contract revenues are obviously lower because typically we record these revenues from partners as contract revenues or contribution to contract revenues. As you see, sale to investment last 12 months is still very healthy. We're at 2.0, which is in line with our historical average, actually slightly better. And you see that it's also an improvement from Q2 of 2024. So what that tells you is that, yes, this quarter was not great. But if you look at the last four quarters combined, we have strong performance on the multi-client side. And again, I think we've beaten our own expectations and market expectations of multi-client for the past three quarters. But this quarter, we clearly didn't. In terms of key projects and announcements in Q2, we completed the Amendment 4 OBN project in the Gulf of America. This is an ultra-long offset over legacy streamer data, and this is a 100% TGS project. In the past, you've seen a lot of projects together with Western G-Core SLB, where we each have 50%. But this, again, is a 100% TGS project. Then we commenced a project also in the Gulf of America called Laconia Phase 3. This is in collaboration with Viridian. Normally, that would also be a 50-50 joint venture. In this particular case, it's 70% TGS and 30% Viridian. So again, TGS taking advantage of a rather strong balance sheet and ability to take a higher equity in some of these projects in basins where we have proven success, such as Gulf of America and Brazil. And then we move to Argentina and Malvinas, where we had a phase three of the Malvinas campaign that completed. We have now 25,000 square kilometers of data coverage in the Malvinas basin of Argentina. And Argentina is a country where I'm actually quite optimistic for the future. We've seen high above-surface risk in the past, or political risk. That has come down and the geology is very promising and obviously our clients are quite excited about our database in Argentina going forward. We're expanding equatorial margin campaign offshore Brazil. This is another area where we have had a successful licensing round happening in the quarter. We saw great interest. We even saw some of the big super majors from the U.S. now paying big fees to get into the equatorial margin together with Petrobras. So this is an area where TGS has jump started and where we already have built a significant database area. And this is one of the last big frontier basins of the world. And both we and our clients are very excited about what we're doing there right now. And again, this is an area that TGS has permits to do more. And we will continue to be rather busy in the equatorial margin for the next 12 to 18 months. We also had a licensing round in Gulf of America announced this quarter. A lot of people have been waiting for that. And obviously, it's a great testament to the current government that they want to get back to oil and gas and they want to increase domestic production of oil and gas. And that obviously starts with both onshore lower 48s, but also with Gulf of America. If we move on and look at the historical multi-client performance, so you see that it's been quite steady in terms of sales to investments. And yes, it was slightly lower in Q2 this year. But again, there's nothing in the market where we see that this shouldn't continue to be relatively strong over time. We continue to set a target of 2x on our multi-client projects. And I think as you see for the last four quarters, we're just in line with our targets. We also look at the, I talked about the oil price development in the latter part of Q2 and you clearly see here that the oil price is dropping from a level of 76 to 78 and all the way down to the mid 60s during the past or last 10 days of the quarter, which is obviously Not a great background for doing big data purchases. Again, we were caught by surprise that we had lower sales than we expected. But we don't think this is a permanent issue. We think it's more of a temporary issue. And obviously, I'm not going to stand here promising that it's going to come back next quarter or the quarter after that. But again, we don't see any long-term permanent changes in appetite for data, rather the opposite. If we move on to contract, again, we had OBN contract revenues of about $88 million in Q2, and that compares to 93, so pretty much flat from last year. Streamer contract revenues dropped from 128 to 115. And again, the utilization of the streamer fleet was quite good this quarter, but we had relatively low revenues, which means that we had operational issues and low productivity on one of our projects in Asia, which I have already talked about and which I will come back to. Overall, gross revenues of 203 versus 221 in the same quarter of last year, and an EBITDA margin of about 25%, and that's slightly up from Q2 of 2024. We've been awarded a shallow water OBN contract in Trinidad. That commenced acquisition in Q2. And then we have several 4D contracts offshore Norway that has commenced during the quarter. And we've also been awarded and commenced a 4D contract offshore Egypt. So again, we have encountered challenging operational conditions and high standby time on a streamer contract in Asia. As a result of that, we have decided to take that vessel out of the area in the bad weather, and it will probably be out for between two and three months, and then we'll come back and finish that survey. So again, some of the backlog, which I will come back to, will move from or shift from Q3 to Q4 as a result of that, but it's not going to change. The overall project is going to have the same size, but hopefully and most likely much stronger productivity when we get back there. On the new energy solution side, relatively flat numbers. So contract revenues, 16 last quarter of last year and then 15 in Q2 of 2025. We had slightly better multi-client revenues up from three to four, which is driven by our One of our acquired companies where revenues are recognized as multi-client. Total revenues flat at 18 and a quite significant improvement of the EBITDA margin from 20 to 31 percent due to very good cost control and taking some actions on the cost base based on the weakness that we've seen in the market, particularly in the U.S. We've been awarded an ultra high resolution contract in offshore Norway. That commenced acquisition in July. Successful completion of a similar project in the UK in the quarter. And then we've also entered into a collaboration with a big client to drive digital transformation in CCS operations. So quite exciting collaboration with Equinor in that regard. If we move to probably the most positive this quarter in terms of the business unit performance, our imaging and technology division had a very strong quarter. We have gross imaging revenues now of 32, which is up from 25 in the same quarter of last year. And we've almost doubled our external imaging revenues from 10 to 19. I think I said that last quarter that our goal is to get somewhere north of 75 on annual revenues for our imaging business. And as you see, we have a run rate now that's more than takes us to 75 and our goal is to continue to grow this business quite significantly going forward. And we're going to grow that business with strong margins. We had 40% EBITDA margin in Q2 of 25 and that compares to minus seven in Q2 of last year. So a lot of positives now on the imaging and technology side. Partly because we've seen very positive market reactions to the introduction of our EFWI and we've seen a significant reduction at the same time of HPC costs from added scale and renegotiation with some of our big suppliers in that area. Our EBITDA again, $12.7 million. So it starts to really pay off also in terms of profitability on the imaging side. I'll hand it over to Sven now. He's going to cover the financials, and then I will be back talking about the outlook after Sven has completed his part. Thank you very much.

Thank you for that, Christian, and good morning to everyone. I'll go through the revenue first on the top left-hand chart on this page. As Christian has gone through all the categories of revenue already, I'll do that rather quickly. We have $308 million. million dollars of total produced revenue in Q2 of 2025. That is significantly down obviously both compared to Q1 2025 and also 19% down compared to the same quarter of last year on a pro forma basis which was at 381 million dollars. Then looking at the operating expenses, we had net operating expenses of $155 million booked in this quarter. This consisted of $236 million of gross operating expenses, and then we capitalized 81 of that to our multi-client library mostly, which led to this net operating expenses of $155 million. In the same quarter of last year, the pro forma gross operating expenses were up at $268 million, and we capitalized 62, which led to 206 in net operating expenses in the same quarter of last year. So we're significantly down on both gross operating expenses and also net operating expenses compared to the same quarter of last year. If you're done looking at our depreciation and amortization chart on the bottom left hand side you see that we had amortization of 109 million in this quarter compared to 115 in the same quarter of last year. This consisted of straight line amortization of 63 and the remaining balance was accelerated amortization. We then had net depreciation of $65 million. This consisted of gross depreciation of 75 and then we capitalized $10 million of depreciation on our vessels to the multi-client library. So that gave us this $65 million of net depreciation in the quarter. All in all, this gave us a negative EBIT of $22 million in the quarter compared to $8 million positive in the same quarter of last year on a pro forma basis. This shows the produced P&L, already gone through most of the details, $308 million of revenues, cost of sales $76 million, personnel cost $57 million, and other operational cost $22 million on a net basis, which gave us an EBITDA of $153 million, subtracting amortization and depreciation. gave us this EBIT of negative 22 million dollars in this quarter. Then to the cash flow, showing here the cash flow on a produced basis. The produced EBIT was as I've said 153 million dollars and then we subtract the paid taxes of 23 million dollars. Paid taxes was relatively high in Q2 and was also relatively high in Q3, which means that we are up at $50 million on a year-to-date basis. The paid taxes is quite difficult to estimate from quarter to quarter and period to period because it depends heavily on our revenue mix. We do not pay any corporate taxes in Norway due to the tax losses or the losses carried forward. But we do still pay withholding taxes and certain local taxes in some of the countries where we operate. So when we generate revenue in these countries, we will typically pay more. And when we generate revenues in certain other countries, we will typically pay less in tax. So we do expect to pay less tax in the second half of the year, but as I said it's a somewhat uncertain number. So this led to, after adjusting for changes in balance sheet items, this led to cash flow from operations of $179 million, we invested $114 million in our multi-client library this quarter adjusting for the non-cash capitalization of multi-client investments which is related to the depreciation of the vessels and also adjusting for the multi-client investments that were paid in other periods. We ended up with paid multi-client investments of 104 million dollars. We had capex of 24 million dollars and then we received a bit of interest leading to total cash flow from investment activities of 126 million dollars. We had a net change in interest bearing debt and leasing of $10 million negative in the quarter. We paid interest of $7 million and dividend payments of $30 million, which gave us cash flow from financing activities of $48 million negative. So all in all, this led to a fairly neutral net cash flow while also adjusting for currency movements. And we had a cash balance of $167 million at the end of the quarter, which was more or less unchanged from the situation at 31st of March. We're showing here some expectations for our cash flow, excluding net working capital and excluding dividends at the current run rate or for 2025 essentially. So we've guided for gross OPEX of 950, which we reduced this quarter from previously approximately 1 billion. And then we've said that we are going to invest 425 to 475 into our multi-client library. So the midpoint of that is 450. And then we've said that the internal portion of this should be approximately 70%. So if you take 315, then 70% of 450 as capitalization of gross OPEX and depreciation. and then add on capex of 135 which is in line with what we have guided for. And then we have expected total lease payments of 120 million dollars. This is This means that it will be lower in the second half than it was in the first half given the current plans that we have for renewals of leases. Then we have interest payments of roughly 45 million dollars and then tax payments which here is listed at 65 million dollars, but as I alluded to it's a quite uncertain number and dependent on the revenue mix. So this means that we have a total cash flow, cash outflow before any networking capital movements and also before dividends of roughly or less than 1.5 billion, 1.45 billion dollars. So then of course the net cash flow will depend on where we end up with with revenues which, as you know, can be quite volatile and somewhat unpredictable. The balance sheet remains strong. We had, as I said, cash of $167 million at the end of the quarter and we had net debt which was just below $480 million. This means that we continue to pay a dividend of 15.5 cent per share in the quarter. The X date is a week from now on the 24th of July and the payment date will be three weeks from now on the 7th of August. This means that we have now returned more than 1.6 billion dollars to our shareholders through dividends and buyback since we started to pay dividend back in 2010. And by that, I'll leave the word back to you, Christian.