Viridien S/Adr

Good morning, ladies and gentlemen. Welcome to this presentation of the CGG's second quarter 2020 results. The call today is hosted from Paris, where Mrs. Sophie Giochia, chief executive officer, and Mr. Yuri Baidukov, chief financial officer, will provide an overview of the second quarter 2020 results, as well as provide comments on our outlook. As a reminder, some of the information contains forward-looking statements including without limitation statements about PDG plans, strategies, and prospects. These forward-looking statements are subject to risk and uncertainty that may change at any time, and therefore, the actual results may differ materially from those that were expected. Following the overview of the quarter, we will be pleased to take your questions, and now I will turn the call over to Sophie.

Thank you, Christophe. Good morning, ladies and gentlemen, and thank you for participating in this Q2 2020 conference call. Our presentation will cover our second quarter 2020 operational and financial results, and I will start today's presentation by giving some background on the market. I'm on slide four now. So although crude oil prices have improved from the historic lows seen in May, the COVID pandemic has continued to dramatically affect global economies and severely degrade our business environment. The energy sector is experiencing particularly strong headwinds. At TGG, we do not see the direct effects of the macro markets. We see E&P companies' reactions. In the past, this created a lag and smoothing effect, but this time our clients reacted very quickly and deeply. In addition, during the previous downturn of 2015 and 16, our clients extracted large savings from their suppliers in what I would call easy efficiency gains. This time is different. The service sector is already lean, and our clients are more focused internally, reorganizing and reducing their staff. This has significantly slowed down activity on new projects and awarded new work. Our markets continue to deteriorate in Q2 more than was originally anticipated just a few months ago, and the timing for global economic recovery remains uncertain. This being said, I am convinced that as new projects are further delayed, the chances of undersupply are increasing. Energy transition also receives more focus, and our clients are increasing their spend towards renewable energies, especially in Europe. They are also focusing oil and gas capex on their core areas and producing the most advantaged hydrocarbons. Moving on to slide five. In this business environment, we are quickly adapting to reality and to our clients' new activity levels while preserving the future. CGG's strategic rationale is strong, especially in these challenging conditions, and is even reinforced in many ways. We are well positioned in three differentiated businesses that are increasingly working together to best serve our clients and develop unique solutions. We continue to invest in our key high-end geoscience technologies, in our multi-client library, and in new best-in-class equipment. All are very important as we manage through the crisis and for the long term. To be the most efficient with our investments, our clients need the best subsurface images to position their wealth and mitigate drilling risks. Our differentiated technologies provide significant value through our imaging services as well as through our multi-client data. In the last two years, we have made a conscious effort to increase our participation in development and production successfully and have avoided frontier areas that we believed were less robust. Most of the subsurface imaging projects that we deliver today are linked to development and production and we continue to lead across all imaging domains, including node processing. A multi-client library is positioned in proven, developed, and mature sedimentary basins, and we continue to extend our footprint in these basins, as well as reprocess our data to provide enhanced understanding to our clients. Our equipment business is benefiting from a unique reputation and the largest installed base. Although we continue to bring to the oil and gas market best-in-class equipment, while expanding into non-oiling gas markets. Another common theme has been digitalization. We have developed in the last few years compelling digital solutions, enabling clients to access and utilize our data seamlessly across the cloud, and to transform and extract new insights from their data. This area maintains good momentum. We're also continuing to pursue efforts around diversification and establishing new businesses to address growing demands around green energy and the transition to low carbon. Moving on to slide six. Throughout my career, the oil and gas industry has gone through many cycles, and this is the most intense I have seen. Given the magnitude of the revenue drop in just three months, the company is rapidly adjusting by reducing its capex and its cost structure. As already announced, 2020 capex was reduced to around 300 million. We are looking at costs across the board and have started to reduce staff in various locations globally, as well as reducing the number of contractors that we rely on in the equipment business when the market is stronger. We are doing this in phases, as we need to deliver ongoing projects on one hand and manufacture equipment for Q4 on the other. Time will give us more clarity as visibility into 2021 currently remains low. We expect to reduce our cash costs by around $35 million in 2020 and around $135 million annualized, including around $90 million of fixed-cost cash costs. Preservation of our liquidity is a priority, and in particular, we're continuing to pursue the monetization of our remaining data acquisition assets. Going on to slide eight now. The current environment had a strong negative influence on our Q2 performance. Q2 revenue was $202 million, down 41% year-on-year. Our team managed through the crisis well, and we did not experience any operational delays related to COVID-19. Our business continuity overall remained excellent, and it's been quite impressive to see how resourceful and resilient our employees and subcontractors have been through these challenging times. GGR revenue was $144 million, down 35%, and equipment was $58 million, down 52%. As expected, GGR was less volatile than the equipment business. Our adjusted EBITDA before non-recurring charges was 76 million for a 37% margin. Adjusted operating income before 49 million non-recurring charges was negative 5 million, not far from breakeven. The current COVID-19 pandemic and unprecedented decrease in oil price and EMP spending have led us to carry a full impairment test in Q2 2020 instead of URAN under normal course of operations, and to launch the readjustment plan. A total of 94 million non-recurring charges were booked in Q2 2020, and URI will go over that in more detail. CDD consumed 60 million of net cash, of which 50 million of cash costs are exceptional and relate to our saving plans. This put our liquidity at 546 million, and net debt before IFRS 16 at $626 million. I'll now cover our Q2 2020 operation by reporting segment. So slide nine with GGR. GGR directly felt the reduction of our clients' E&P capex, and in addition, was impacted in the short term by a client's significant reorganization, especially of their geophysical departments. Overall, GDR top line decreased 35% to $144 million and adjusted EBITDA margin at 56%. Adjusted OPIN before non-recurring charges was positive $9 million. Slide 10 with geoscience. Geoscience total production was $113 million in Q2, down 12% year-on-year, as the geoscience business delivered earlier awarded projects. New commercial activity was particularly low in May and June, and backlog decreased to 214 million at the end of June. Our imaging technology continued to advance rapidly, supported by our exceptional people and industry-leading high-performance computing capability of 268 petaflops. On slide 11. Looking at our Geoscience operational highlights, let me first start by saying that Geoscience has continued to deliver quality work on time with the latest technology despite the majority of its employees working from home. Q2 activity benefited from the momentum of 2019 and of early Q1. Q2 total production was down 12% year-on-year and 10% sequentially. Preservation of business continuity and profitability has been the focus throughout the quarter. We know that our clients will spend less this year and postpone some of their plans. They will keep working on their most important projects to high-grade their portfolios. The key geographical areas of interest include the Gulf of Mexico, Brazil, North Sea, UK, and Norway, where CGD is well-established, understand the subsurface, and has an excellent track record of delivering the best images. You see on this slide a striking example of the kind of high definition that we can now achieve. This unmatched level of detail enables our clients to better understand their reservoirs and all in place, which is critical to implementing optimized recovery methods. On a recent proprietary project, in one of the images, you could clearly see the well trajectory and even the subsea platform legs and support structures. The pace of innovation and advance continues to accelerate, and this much higher resolution and quality can significantly improve our clients' ability to successfully achieve their goals. On slide 12 now with multi-client. Q2 multi-client numbers were supported by ongoing well-prefunded programs in proven and mature basins. After sales were very low as clients reigned in anything new, pending reorganization, reprioritization, and rebudgeted. After sales are a good indicator of our client's mindset. They are the first to reduce in difficult times, but also the first to pick back up when perspective improves. I would also point out that we maintain a strict discipline on pricing and have around 14 million of deals that have shifted to Q3 because of this price discipline. And since the end of June, these deals have been signed. Pre-funding revenue was 46 million, slightly down from last year, as we remain quite active this quarter with multiple client capex increasing to 73 million with a 63% pre-funding rate. Slide 13. We had four multi-client projects in acquisition during the quarter. Despite COVID-19, all of our operations globally progressed without interruption, and pre-funding remained strong. These included one land survey, central basin platform in the US, and three programs in marine. Nebula in Brazil, our 15,000 square kilometer program in the Santos Basin, which attracted high level of client interest. Two thirds of the program was acquired at the end of June. We have received permit extension that will allow us to continue acquisition in this successful area in 2021. Gippsland in Australia. This 8,700 square kilometer program in the Gippsland Mature Producing Basin is now completed. And the third program is an ocean bottom node survey in the cornerstone area of the UK North Sea. In addition, we also commence this quarter the reprocessing of our multi-client stack size marine survey in the GOM. The first phase of this re-imaging project is bringing a new light to the data and raising significant client interest. We may conduct additional phases based on industry interest and funding. During these challenging times, reprocessing opportunities can extract significant uplift from the data and bring to market cost-effective alternatives to a new acquisition. Looking at the rest of the year, we expect 2020 multiplying cash capex of around $225 million, with a solid pre-funding rate of more than 75%. Moving on to slide 14 now, with equipment. Equipment revenue was down 52% year-on-year at 58 million. The percentage drop is accentuated by the fact that last year was front-loaded with mega crews. Nevertheless, activity has fallen significantly and is now largely driven by land opportunity. Marine equipment represented only 17% of total sales and was mainly the sales of spare parts. Equipment adjusted EBITDA was at break-even. which shows our strong ability to adapt our structure to meet market conditions. During the quarter, and slide 15, during the quarter, equipment delivered over 60,000 508 cross-tech land data acquisition channels and 10 big NOMAD 90 vibrators, mainly in North Africa and Asia. Equipment also delivered its first wing node land systems. At this time, the standard mega crews in the Middle East are still pending award, and the most likely scenario is that two should be awarded before year-end to geophysical contractors who will then purchase equipment. Demand for marine equipment, both streamers and nodes, is expected to remain low in 2020, as geophysical contractors stack more vessels and continue to try and reuse old streamers. In our non-oil and gas segment, the first pilot test for Cécile's new structural health monitoring node prototype, designed for the growing high-end infrastructure monitoring market, was performed in France with promising results. Equipment also acquired a stake in a French startup specialized in autonomous robots. I'm on slide 16 now. CDD is continuously recognized as a leading service company from an environmental, sustainability, and governance standpoint. External rating agencies rank companies over a list of criteria, and we achieve an excellent AA rating with MSCI and 55 rating at Video Iris. The average company score is 30. MSCI and Video Iris are the two leading ESG rating agencies. One important ESG KPI is our carbon footprint. After our exit from acquisition, our Scope 1, which is direct emissions, has reduced to virtually zero. Based on this, our focus is now on Scope 2 and Scope 3. Scope 2 is mainly the electricity that we use in our data centers, but also in our manufacturing facilities. And we continue to enhance the efficiency and percentage of green energy. As of H1 this year, 23% of our power comes from renewable energy. On slide eight, 17. While we have many more ESG initiatives than I could show on this slide and technologies, I thought it would be timely to show you some of our technology and business initiatives in this area. Not only are we focused on improving our own environmental footprint and sustainability, but also our core geoscience expertise and technology is valuable to our clients in their ESG efforts. And it is clear that the current crisis is accelerating many of our clients' ESG and renewable energy strategies. We're leveraging our expertise and technology to support our clients' efforts in this area. And while the revenue associated with this emerging business is marginal to our overall performance today, It is a promising area of focus for our future. When it comes to environmental footprint, one of the key technologies is carbon capture and monitoring. Going forward, many of our clients will be more and more integrating carbon capture and monitoring systems into their developments. This requires a detailed understanding of the subsurface, which is precisely our area of expertise. A satellite mapping machine learning technology helps our clients monitor offshore pollution, We have a contract with one client today to monitor all their platforms globally. We have also expanded our client base and now have mining companies using our technology to monitor the structural integrity of their operations. Our satellite mapping and CESAR technology can be applied to a wide range of challenges that the world faces today, including structural integrity monitoring for infrastructures and earthworks, as well as monitoring for geohazards, subsidence, and the environment. With our social quality equipment, we provide passive acoustic monitoring to detect marine mammals' presence with an unequal degree of precision. I will continue to update you on the successful developments of these new business initiatives as they continue to progress. And I will now give the floor to Yuri for more financial highlights.

Thank you, Sophie. Good morning, ladies and gentlemen. To help navigate our Q2 and H1 results, we have added supplementary information on slide 19. The global economic crisis triggered by the COVID-19 pandemic and unprecedented drop in oil price and EMP spend of our customers have led CG to carry a full impairment test in Q2 2020 and launch cost reduction actions designated as a COVID-19 plan. As a result, We booked this quarter 94 million of non-recurring charges, and I would like to provide you more details on where they landed in our consolidated income statement. At the EBITDA level, we had seven million of severance costs related to the COVID-19 plan, including six million in GGR and one million in equipment. Below EBITDA, at the OPINC level, we also booked 17 million non-cash charges mainly related to the fair value remeasurement of geosoftware business available for sale, and 24 million non-cash goodwill impairment related to geoconsulting business, which is mainly focused on exploration and appraisal. Below a pink level, we additionally had 37 million non-cash charges related to fair value remeasurement of other financial assets and liabilities, OFI, mainly related to exit from marine acquisition business transactions. and $9 million non-cash impairment of deferred tax assets. It is important to mention that our goodwill remains largely intact and has been reduced by a limited amount of $24 million related to geoconsulting business. A total of $166 million of non-recurring charges related to the economic crisis triggered by COVID-19 pandemic and our industry downturn was booked over the first half of the year. Looking at the consolidated income statement for the second quarter of 2020 on slide 20, segment revenue from our new profile amounted to $202 million, down 41% year on year. GGR contribution was $144 million, a 35% decrease year on year with 71% weight. Geoscience external revenue was $83 million, 11% lower year on year, And multi-client sales were at 62 million, decreasing 52% year-on-year, mainly due to significant drop in after-sales. Equipment revenue contribution was 58 million, down 53% year-on-year, with 29% weight. Segment EBITDA was 68 million, including 7 million of COVID-19-related cash costs, a 34% margin. Segment operating income was negative at 53 million, including 48 million of non-recurring charges. IFRS 15 adjustment at operating income level was positive 21 million, and IFRS operating income after IFRS 15 adjustment was negative 32 million. Our cost of financial debt was 33 million, with a non-cash peak component of 11 million flat year on year. Other financial income, or FI, had a loss of 36 million, including 37 million non-cash charges related to fair value remeasurement of other financial assets and liabilities. Income taxes were 33 million, including 9 million related to the non-cash deferred tax assets impairments. Net loss from continuing operations was 134 million. Net loss from discontinued operations was 13 million. Group net loss was 147 million. Adjusted net loss from continuing operations, excluding a total of 94 million of non-recurring charges described previously, was 40 million. Moving to slide 21 and looking at our cash flow statement, in the second quarter of this year, segment operating cash flow was 81 million, a decrease of 35% year-on-year, despite a 55% reduction in adjusted segmented debt. Our multi-client cash capex of $73 million was 30% higher than last year, driven by solid portfolio of ongoing well-prefunded projects. In the second quarter, cash pre-funding rate was 63%. Industrial cash capex and R&D costs in our geoscience and equipment businesses were flat year-on-year at $16 million. Segment-free cash flow was slightly negative at negative $8 million. Cash cost of debt was flat year-on-year at $32 million, and lease repayments were at $15 million. Net cash flow from discontinued operations was zero this quarter, compared to negative $20 million in the second quarter of 2019. Overall, our non-recurring cash costs amounted to $25 million this quarter, And our net cash flow was negative at $77 million compared to negative $31 million in the second quarter of 2019. For the first half of 2020, our net cash flow was negative $60 million, including $54 million of cash costs related to exit from acquisition business and COVID-19 related plans. Moving to slide 22 and looking at our group balance sheet and capital structure, as a result of the negative net cash flow, our liquidity decreased to $546 million at the end of June 2020. At the end of June 2020, our gross debt was at $1,329,000,000 or $1,172,000,000 before FRS 16 with the following breakdown. 614 million of first lien U.S. dollar and Euro bonds due in April of 2023, 543 million of second lien dollar and Euro bonds due in February 2024, 159 million of lease liabilities, including 41 million of Galileo financial lease and 116 million of operating leases under FRS 16, and 13 million of other items mainly accrued interest. Looking at our financial leverage ratios at the end of June 2020, net debt to shareholder equity ratio was at 60%, and segment leverage before FRS 16 was at 1.1 times net debt to last 12 months EBITDA. At the end of June 2020, our capital employed was at 2.1 billion, down from 2.3 billion at the end of 2019. Networking capital, after FRS 15, was flattish at 153 million. Goodwill was at 1.18 billion, corresponding to 55% of total capital employed. Our multi-client library netbook value, after FRS 15, was at 480 million. Other assets were at 480 million, including 277 million of property, plant, and equipment, down from $300 million at year end, including $159 million of IFRS 16 right of use assets, of which $41 million related to Galileo Financial Lease, $159 million of other intangible assets, stable versus year end, and $44 million of other non-current assets, up $14 million from year end, mostly from shareholder vendor note of $23 million. Other non-current liabilities were at $157 million, including $101 million of non-current portion of liabilities related to capacity agreement with Sharewater, including $49 million related to off-market component and $52 million to idle vessel compensation. Shareholders' equity was at $1.35 billion, including $39 million of minority interest mainly related to our joint venture in China. In those turbulent and uncertain times of global economic crisis triggered by COVID-19 pandemic, which is further exacerbated by severe downturn in our industry, preservation of cash becomes more imperative than ever. This is why we continue to stay focused on generating cash, significantly reducing our cash costs and preserving our liquidity. Now I hand the floor back to Sophie for an update on our business outlook and conclusions.

Thank you, Yuri. In conclusion, in 2019, we successfully, this is slide 23, we successfully transformed the company into an asset-like people, data, and technology company. Well ahead of schedule and managed to reinforce our leadership positions across all core business lines. Looking forward into the second half of 2020, it is clear that the business environment will be very difficult. However, when I put it into perspective, we are in a much stronger position that we still have five vessels, and I'm confident that our current strategy and our teams are optimal for managing CDG through this crisis. Outside of exceptional costs, we have managed to control cash spend despite the 41% revenue drop. This was achieved through strong cost control across all business lines. We'll also continue to see interest from our clients around the enhanced insights that we can provide to them in their core basin through our leading technology and data. Our technology remains fundamental to our clients' success as we play a significant part in the efficiency and effectiveness of their business. I'm confident that our value proposition remains intact, and that we will succeed in preserving our capabilities to capture future growth. While our visibility remains limited, our H2 top line will depend heavily on the continued evolution of the COVID-19 pandemic, oil price, and our clients' reactions to the changing landscape. At current, our clients are adapting their organization and entering into the budgeting cycle for 2021. Assuming stable market conditions with the pandemic under control, and at all price above 40, we should see more stability, which could be conducive to an uptick in multi-client sales in Q4. Equipment performance will depend heavily on the meeting with Megacruise. The entire CDG leadership team and company is determined to deal with the current challenging conditions and to make the best of this crisis to further reinforce the company, as well as plant the seeds for future growth. Thank you for your interest, and we're now ready to take your questions.

Enough? Operator?

Yes, thank you, ladies and gentlemen. We will now begin the question and answer session. And as a reminder, if you wish to ask a question, you will need to press star and one on your telephone keypad. And your first question comes from the line of Sean Luc Romain from the CIC Market Solutions. Your line is now open.

Good morning. Thank you for taking my questions. My question is related to the non-oil and gas applications of both your services and equipment businesses. How big do you see the geothermal sciences and carbon capture monitoring markets in, say, five to ten years? That's for the services. And for equipment, You mentioned a successful test in the first half of your infrastructure proposition. Do you see some turnover already in H2, or should we expect it more in 2021?

Okay. Thank you, Jean-Dix, for your question, and good morning. I'll take that. So basically your questions are around efforts into non-aligned gas areas or kind of around it, like the carbon capture and the geothermal. So the market size, I mean, it is a growing market. As you see, definitely with the energy transition, the carbon capture is the the most sort of effective and obvious technology that will allow us to reduce our carbon emissions. So therefore, it's going to be growing very significantly. So I think for us, right now, our participation, at least for a start, will be more around the understanding of the subsurface. And I don't see any reason why at some point, horizon, this can be almost equally the size of what we're doing right now in the processing and the geoscience organization. It's hard for me to say when and how fast this will go there, but it might become a significant portion of what we do. On the equipment side, it is early stages. We're more at the stages of testing the prototypes. And I don't think there will be revenue this year, but, yeah, probably starting 2021, we should start seeing some revenues from it, especially as the results of the test are encouraging. Thank you.

Thank you. And your next question comes from the line of Christopher Molokin. Your line is now open.

Good morning, this is Christopher Muller-Locken in Carnegie. I noticed that your partner MagSize Fairfield announced a new pre-fund around the Cornerstone project this morning. Does that mean that it would be fair to assume pre-funding percentage to increase for CDG in third quarter versus second quarter?

Hi Christopher, thank you for the question. I mean, I would say this is just normal course of action, and that's why you haven't seen sort of the equal announcement from our side. I think we're committing to that 75% pre-funding minimum, and we're still on it. So I think nothing so special as the normal course of action as we do our projects. We continue to bring pre-funding to them.

You expected two of the mega crews in the Middle East to be awarded to seismic companies by the end of this year. But did I understand correctly that you also assumed then that it could impact CERCEL already in 2020 or is this more a 2021 event?

I mean, we're trying to figure that out, right? So the current view is that right now there are three 3D mega crews standard and one 2D. What we understand is one 3D and one 2D are shifted into next year to be awarded. So definitely that's not 2020. And two 3D mega crews will be awarded this year. So right now there are two mega crews in operation that are going to be finishing work in September. So we would expect that the country will want some level of continuity, not exactly starting October, but not too long afterwards. So if those crews are awarded, say, early enough in the fourth quarter, I would expect those sales for the equipment providers to happen in the Q4. And we're getting ready for it. because obviously we can't manufacture equipment in a short turnaround, so we're having to anticipate that. So we're still right now anticipating that we might have cells in Q4, but it depends when those are actually awarded, but the current plan is for that to happen sometime in Q4.

Thank you.

Hello, excuse me, your line is now open.

Yes, good morning. Maybe I took the call 15 minutes late, so maybe you spoke about it. My question basically is on geoscience because I find geoscience performance in Q2 disappointing, especially when you read what you have said during the Q1 call. So my question is very straightforward. So what happened exactly in geoscience in Q2? Was there some bad news? Were you a little bit too optimistic or too confident in Q1? And my second question, of course, is what is the outlook for geoscience in H2? Thank you very much.

Bonjour, Guillaume. I'm not sure what I said that made you believe that geoscience was on a more optimistic view. I think what I said on the outlook for geoscience is that the business would gradually reduce, and it's actually exactly what's happening. So we're seeing an 8% reduction from last year. which is much better than what we're seeing in multi-client or equipment. So we're sort of confirming that geoscience is actually indeed a bit more resilient because of the backlog. So nothing really happened in geoscience during the quarter. We still maintain that view that the decrease in geoscience will be gradual. But because of that backlog, it gets hit by the downturn with a delay. So we do expect actually that geoscience will suffer more into 2021 as the backlog sort of, the order of intake sort of reduces into the following quarters. But we continue to deliver our projects, we have leading technologies, so the value proposition of geoscience remains there. I'm actually quite happy with the performance of geoscience in the second quarter, so I'm not too sure. Perhaps you can expand on why you think the performance is disappointing.

No, basically I think this ping pong play between you and I is very interesting because in my mind gradually was probably more gradual than in your mind. What I just would like to say, you give some granularity or some qualitative elements regarding geoscience for 2021. What are the two or three main drivers for geoscience looking into 2021? Okay.

Yes, so as I said, the one element that we look at on a very detailed basis is the backlog and the order intake. And as I mentioned, you know, May, April, May, and June, are slow, and that's the result of our clients reorganizing their different departments. And so, in general, the budget cuts have been approved, if you want, at the top level, but they haven't necessarily percolated on a project-to-project basis. And on top of it, the organizations are moving, which is, of course, not very conducive for a work to be awarded. So order intake is going to be critical. And I think, of course, you know, we need to understand, you know, how much data is being acquired because that drives, you know, processing projects. We need to look at the reprocessing because the, and usually it does pick up to some extent when there's less data acquired because the trade-off is being made. And especially as technology improves so rapidly, that more trade-offs are being made towards reprocessing. So I would expect that eventually reprocessing picks up. Of course, multi-client is an important element for our processing organization and our ability to reprocess our projects and bring enhanced value to our clients. So we're looking at what makes sense to reprocess in our data library that clients would be willing to fund. for example. So there's a lot of elements into that, but we'll feel more of the effect of the gradual. Again, perhaps we have a different definition of gradual. The gradual decrease later this year and into early next year.

Okay. Thank you very much. Thank you.

And your next question comes from the line of Sarah Islam from Goldman Sachs. Your line is now open.

Morning. Thank you for taking my questions. One was a broader one for you, Sophie, please. We've talked a bit about how the seismic business overall is shifting more towards brownfield as that's where customer capex is going. How do we think about what proportion of multi-client and geoscience is now brownfield versus greenfield? And then secondly, one for Yuri. Do you mind just giving us a quick overview of the big moving parts for net cash flow for 2020? and it's slightly impossible in this market, but where you expect to end up in the current market conditions for net cash flow for this year, please. Thank you.

Yeah, good morning, Sahar. It's definitely, as I mentioned, the client priorities are becoming more and more into the production optimization, development, and less so on pure exploration. That said, because that exploration is more and more into the step-outs around existing infrastructure, we're seeing an increasing number of projects combining both. So in terms of our numbers, it becomes a bit difficult to start, you know, splitting what is exactly a production enhancement and what is step-out exploration because it's just the cover of We cover a larger area and do both at the same time. But generally speaking, I guess in the past, where probably CGG was 60% more exploration appraisal and 40% development and production, less so even production, now it's probably shifted the other way around. You probably have 30% to 40% exploration and 60% to 70% brownfields. Now, for example, places like Brazil, I wouldn't call them brownfields, but I call them discovered basins. They're in appraisal slash development phase, and so all our Brazil work will fall into that category. But there is very little that we do anymore. It's marginal in that frontier exploration. It's just where the budgets are going, and it's quite natural. If you look at our multi-clients, The Australia project that we did, for example, it's purely mature basin. I mentioned that during the call, this has been a conscious decision to go to those areas because we know those are more resilient than those pointy areas. We've seen very little we've reduced our exposure substantially to those 20 areas. And therefore, we're going to be suffering less, perhaps, than other players in the market.

That's very helpful, Carla. Thank you.

Zahar, good morning. Answering your second question, I can only tell you what we control, I would say, in the current difficult market environment. And if I go or if I look at cash provided by operations, I'm not going to talk about change in working capital because naturally it can fluctuate. One line which will be smaller than last year is income taxes paid. So in other words, cash income taxes will be in the range of $10-15 million maximum. Of course, you know our CAPEX, which is 300 million, so we reduced it significantly from the previous guidance, but it will be higher year on year because of the multi-client program of projects that we talked about. Then, when we look at discontinued operations, There is this element which you're well aware of, and this is the cash cost related to exit from acquisition, which we still expect to be in the range of about $80 million. What we call now or what we designated as COVID-19 plan cash costs this year, we anticipate to be around $30 million. And again, these costs mainly related to severance, related to the reduction in headcount that we already started. And then last but not least, our paid cost of debt will be in the range of $85 million and lease repayments will be flat at about $55 million. So basically, these are the key elements, again, that we control and manage.

Very clear. Thank you, Yuri.

Thank you. And your next question comes from the line of Giuliano Torri from Saria. Your line is now open.

Hello there. Thanks for taking my questions. Could you please... You mentioned that you don't want to talk about the working capital trends, which I kind of understand. But I just wanted to basically, if you could explain a bit more what happened with your working capital in Q1 and Q2, and what do you expect for second half based on scenarios of either, let's say, better than expected recovery or worse than expected slump? Thank you.

Yes, good morning. So as you saw in Q1, we had positive change in working capital. and actually in H1 as well, which is kind of natural because basically we've been collecting revenues that were generated in the fourth quarter of last year and the first quarter of this year. Now, the working capital story will depend ultimately on the fourth quarter of this year As Sophia was explaining, if the mega crews are awarded in Saudi and we do get another for equipment, so then sales and inventory will go up in equipment business. And equally, like always, we... anticipate that after sales will still be highest in the fourth quarter of the year. But of course, it will depend largely on the outlook of our customers for 2021 and where the oil price will be towards the end of the fourth quarter. So if we will have so-called Christmas sales as usual in the fourth quarter, then receivables in multi-client will So that's, broadly speaking, the possibilities. Now, if those elements will not happen, then it will be a different story for working capital as well.

Thank you. Second question that I have is, just to clarify, you do not have any 20 million, the expected 20 million cash outs from this continued operations this quarter, but you confirmed the 80 million for the year. Is it just that you postponed it for the other parts

No, actually our cash costs related to acquisition were overall 50 million in H1 out of 80. The 20 million was actually relating to, I think it was Yes, so basically, yes, we spent $50 million of CEG 2021 or cash costs related to acquisition in the first half, and we expect another $30 million in the second half of the year.

Okay. No, no, fair enough. Another question that I'll have is there has been some pickup in the U.S. onshore, but it's mostly, let's say, developed but uncompleted wells. What are you seeing? Did you see any changing trends since the oil price bottom and since they more or less stabilized around the 40 area or are you waiting to see how your customers are going to react to these developments?

Yeah, I'll take that question. Thank you. It pertains to the U.S. onshore where we have very little exposure in a way. So the main exposure that we have is through our multi-client acquisition, multi-client data library, and a little bit of equipment that we sell to the U.S. We're not really seeing any changes resulting from the small objects that we saw as of recently. We were quite busy making two acquisitions early in the year when this downturn happened. And we had pre-funding and clients committed, and that's been maintained, so we've delivered those projects. But I don't anticipate, you know, actually making new multi-client investments in North America anytime soon. Now, are we going to sell the data? Yes, there are still conversations with clients, I would say, on a normal course basis, but probably lower than would normally be in better conditions. And certainly haven't seen an update just as of recent. What we're watching is the transfer fees, right? As companies might be changing hands and M&A happening, there could be an opportunity for us to charge for those transfer fees.

Thank you very much.

Thank you. Once again, if you wish to ask a question over the phone, please press star and one on your telephone keypad. There are no further questions at this time. Please continue.

Yeah, I think we've covered a lot of subjects, so thank you very much for attending this quarterly call. I look forward to interacting with you in further meetings. Thank you very much again, and have a good day.