TGS and PGS Agree to Form $2.6B Energy Data Co

TGS and PGS Agree to Form $2.6B Energy Data Co
'It will combine the capabilities of both companies to create a geophysical powerhouse'.
Image by cagkansayin via iStock

TGS ASA and PGS ASA have agreed the principal terms of a combination “to create a strong full-service energy data company”, the businesses said in a joint statement.

The deal is expected to be completed as a statutory merger pursuant to Norwegian corporate law, with merger consideration to PGS shareholders in the form of 0.06829 ordinary shares of TGS for each PGS share, the statement noted, adding that, following the completion of the transaction, TGS and PGS shareholders will own approximately 2/3 and 1/3 of the combined company, respectively, on the basis of the share capital of each of the companies as of September 15, 2023. 

The combined company will have a combined fully diluted market cap of approximately $2.616 billion and a net interest-bearing debt (NIBD) of $649 million, corresponding to a market cap:NIBD ratio of 80:20, the statement highlighted. The combined business will seek to optimize its capital structure, efficiency, and cost based on the strength of the combined balance sheets and cash flows, according to the statement.

“As such, the combined company plans to refinance PGS’ $450 million senior notes and the term loans on first call opportunity,” the statement said.

“As an overriding principle, TGS will continue to maintain a conservative balance sheet profile,” it added. 

The deal is said to be supported by the board of directors of both companies. Definitive merger agreements are expected to be entered into in October this year, with closing of the transaction expected during the first half of 2024, “subject to satisfaction of conditions for completion”.

The transaction remains subject to a confirmatory due diligence by both parties, finalizing and executing a definitive merger plan, as well as customary closing conditions such as relevant regulatory approvals and consents and expiry of statutory waiting periods and no material adverse change occurring, as well as approval by extraordinary general meetings in both TGS and PGS with at least two-thirds majority, the statement outlined.

Full-Service Geophysical Data Company

The transaction establishes the combined company as a full-service geophysical data company with a strong offering in all segments, including multi-client data, streamer data acquisition, ocean bottom node (OBN) data acquisition, imaging and new energy data, the statement noted, highlighting that it also helps “mitigate supply chain risks and will add further to economies of scale and efficiency, enhancing the value offered to clients”.

“In multi-client, the combined company will offer customers a global seismic library with data from all active basins in both the western and eastern hemispheres,” the statement said.

“In data acquisition, the combined company will be a substantial player globally with a strong operational track record. For streamer acquisition, it will hold an operational fleet of seven 3D data acquisition vessels, and for Ocean Bottom Node acquisition, the combined company will benefit from around 30,000 mid and deepwater nodes,” it added.

“Within imaging, the combined company will offer a strong service to in-house and external customers integrating on-premises and cloud based high-performing computing services. In addition, the combined company sees significant growth opportunities in new energy with complementary technology offerings for Carbon Capture and Storage (CCS) and offshore wind,” it continued.

The statement also revealed that the combination “will benefit from cost synergies with a preliminary estimate to be above $50 million annually”.

Major Milestone

Commenting on the deal, TGS CEO Kristian Johansen said, “we are excited to announce a merger with PGS, completing a major milestone of building a fully integrated and robust global energy data provider”.

“Our clients will benefit from scale, a unique technology portfolio and premier service quality. Bringing together two distinct, yet complementary, companies positions us even better for a continued upcycle in the energy sector,” Johansen added.

Rune Olav Pedersen, the President and Chief Executive Officer of PGS, said, “the seismic industry is changing whereby production seismic is becoming increasingly important alongside the traditional exploration seismic”.

“By combining TGS and PGS’ complementary resources, we create a fully integrated geophysical service provider well positioned to generate significant value for all stakeholders,” Pedersen added.

Chris Finlayson, Chair of the Board of TGS, said, “this is a strategic transaction for TGS and a major step on the journey we started in 2019”.

“It will combine the capabilities of both companies to create a geophysical powerhouse. The transaction continues TGS’ strategic development from a pure Multi-Client seismic company to the leading acquirer and provider of geophysical data to both the oil and gas and new energy industries,” he added.

Walther Qvam, Chair of the Board of PGS, said, “the merger creates a full-service geophysical company with a strong balance sheet”.

“Financial flexibility enables investments in attractive core activities as well as in the rapidly growing new energy business. The pioneering innovation cultures in both companies will contribute to a strong foundation for new product offerings and profitable growth” he added.

Rejected Offer

On August 6, 2020, TGS, then named TGS-NOPEC Geophysical Company ASA, announced that it had submitted a conditional offer for the purchase of the multi-client data library of PGS ASA.

Under the Offer, PGS would, upon consummation of the sale, receive a cash consideration of $600 million, TGS said in a statement posted on its site at the time. In addition, TGS proposed that the parties enter into a post-closing collaboration agreement for future PGS multi-client projects, which would include certain preferential rights for PGS to offer their 3D-fleet for future TGS data acquisition, TGS revealed in the statement.

“The proposed transaction presents an opportunity for PGS and its stakeholders to monetize its multi-client data library in excess of its full reported value, delivering substantial funds to PGS in what are challenging times for the entire seismic industry,” TGS said in that statement.

In a statement posted on its site on August 7, 2020, PGS confirmed that it had received a conditional and non-binding offer from TGS to acquire its multi-client data library for a cash consideration of $600 million.

In a follow up statement posted on its site on August 13, 2020, PGS said its board, together with PGS management, had reviewed and assessed the unsolicited, conditional, and non-binding proposal to acquire the multi-client data library of PGS received from TGS-NOPEC Geophysical Company ASA and noted that the board had “unanimously concluded to reject the TGS proposal”.

“The board of PGS is of the view that the value of the company’s multi-client data library is significantly greater to PGS than that represented by the TGS proposal, and that the timing of the proposal is opportunistic given the current market backdrop and macro-economic environment,” PGS said in the statement.

“Having consulted with its financial and legal advisers, the board of PGS has concluded that the proposal is not in the best interests of the company and its stakeholders. PGS remains committed to its integrated service strategy and the benefits to the company and its stakeholders from the combination of multi-client and contract operations,” it added at the time.

Q2 Results, Outlook

In its second quarter results statement, TGS reported an operating profit of $23.0 million. This compared to an operating profit of $31.4 million in the same quarter of last year, the company highlighted.

Revenues amounted to $206.3 million in Q2 2023, a decrease of 10 percent from $230.1 million in Q2 2022, TGS’ results statement revealed.

“E&P companies have focused their exploration spending on non-discretionary categories in the first half of the year, prioritizing drilling, infrastructure-led exploration, and 4D, as well as fulfilling work commitments,” Johansen said in the results statement.

“TGS has been well positioned to benefit from this, as evidenced by strong growth in multi-client early sales and acquisition revenues,” Johansen added.

“We continue to see robust inflow of prefunding for new multi-client projects, and we are confident that full-year multi-client investments will be well above $350 million, with an early sales rate in excess of 70 percent,” Johansen continued.

In its Q2 results statement, PGS reported a net loss to equity holders of $9.3 million. This compared to a profit of 18.7 million during the same period last year, the statement showed.

The company’s revenues came in at $186.4 million in the second quarter, compared to $209.7 million in Q2 2022, PGS’ results statement outlined.

“We achieved a multi-client pre-funding level of 127 percent of capitalized cash cost in the quarter, and we continue to deliver improving rates and margins on our contract work,” Pedersen said in the results statement.

“The strong acquisition revenues are achieved despite weather related challenges for our vessels working on the Norwegian continental shelf in the early part of the Europe season, and a delayed yard stay for the Ramform Sovereign,” he added.

“Our order book remains at a high level, and we are now in the process of booking capacity for the early part of the winter season. We expect the contract bidding activity to increase driven by the highest volume of sales leads since December 2014,” he continued.

In the results statement, Pedersen highlighted that the company refinanced earlier this year “deliberately leaving $138 million of our Term Loan B to be repaid in March 2024”.

“According to our estimates we can manage this repayment with our liquidity reserve and the cash flow we expect to generate over the next quarters,” he said.

“However, to further increase the liquidity headroom and financial robustness we announced today that we have secured commitments of $75 million from supportive creditors for a separate facility to refinance parts of the March 2024 Term Loan B maturity,” he added.

To contact the author, email andreas.exarheas@rigzone.com


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