TGS ASA (TGS) has reported its financial results for the second quarter of 2024, with CEO Kristian Johansen emphasizing the company's recent contract signings and the completion of the PGS transaction.
While TGS experienced a decline in POC revenues to $215 million from $241 million in the same quarter of the previous year, the company has seen an uptick in late sales and a significant increase in its early sales rate.
Despite the lower revenues, TGS remains positive about future growth prospects, citing the importance of data in energy sectors and the potential for significant growth in the acquisition business.
Key Takeaways
- TGS reported Q2 POC revenues of $215 million, a decrease from $241 million in Q2 2023.
- Late sales increased to $66 million, up from $63 million the previous year.
- Early sales improved, with the rate increasing from 77% to 94%.
- The company completed the PGS transaction on July 1, 2024, and reported substantial synergies.
- New contracts worth $368 million were signed, pushing the total backlog to $611 million.
- TGS expects Multi-Client investments to be around $120 million in Q3.
- The company announced a dividend of $0.14 per share.
- TGS remains optimistic about the role of oil, gas, and renewables in the energy mix and the company's growth in these areas.
Company Outlook
- TGS anticipates continued importance of oil and gas, with gas growth expected until 2050.
- The company is focusing on providing data and insight in the growing renewables and carbon capture industries.
- TGS is sold out for Q3 2024 and has a strong backlog, indicating optimism for the acquisition business's future.
- The upcoming Capital Markets Day on August 29th will provide more details on strategy and financials.
Bearish Highlights
- Q2 revenues declined compared to both the previous quarter and the same quarter last year.
- The Multi-Client and Imaging business unit saw a slight decrease in revenues due to lower early sales.
Bullish Highlights
- Digital Energy Solutions unit experienced a 62% increase in revenues, indicating strong growth.
- The acquisition of PGS is expected to bring significant synergies and has been met with excitement for future growth potential.
- The company has a strong contract inflow and a substantial backlog, supporting future revenue streams.
Misses
- The company's total revenues and Multi-Client investments were down from the previous year.
- Cost of sales increased to $42 million from $35 million in Q1.
Q&A Highlights
- CEO Kristian Johansen confirmed the cultural and operational integration with PGS is progressing well.
- CFO Sven Larsen addressed the company's financial reporting and dividend policies, with more details to be provided at the Capital Markets Day.
- The company plans to reduce net debt while maintaining some level of debt post-acquisition.
- Investments in Multi-Client projects are expected to increase in the second half of the year.
TGS ASA's Q2 2024 results presentation reflected a company in transition, facing revenue challenges but also seizing opportunities for growth and efficiency through strategic acquisitions and a strong focus on emerging energy sectors. CEO Kristian Johansen and CFO Sven Larsen provided insights into the company's performance and future plans, including the anticipated benefits from the PGS acquisition. With a robust backlog and a clear strategy for the future, TGS ASA appears poised to navigate the evolving energy landscape.
Full transcript - None (TGSNF) Q2 2024:
Bard Stenberg: Good morning, and welcome to TGS Q2 2024 Results Presentation. My name is Bard Stenberg, Vice President of Investor Relations in TGS. Today's presentation will be given by CEO, Kristian Johansen; and CFO, Sven Borre Larsen. Before we start, I would like to draw your attention to the forward-looking statements showing on the screen and available in today's presentation and earnings release. You can also start typing in questions during the presentation, and I will address those questions to management after their concluding remarks. So with that, I give the word to you, Kristian.
Kristian Johansen: Thank you, Bard. So I hit the highlights right away. So TGS had POC revenues. And this is stand-alone TGS. POC revenues of $215 million in Q2. That compares to $241 million in Q2 of 2023. Our late sales were $66 million. That's up from $63 million in the same quarter of last year. And then we had early sales of $49 million, which compares to $66 million of last year, but the early sales rate is up from 77% last year to 94% in Q2 of this year, signaling that we had a combination of strong prefunding of new projects and also healthy sales of existing projects that are still in the acquisition of processing phase. We had proprietary revenues of $100 million compared to $113 million in the same quarter of last year, and we had an EBIT of $28 million in Q2. That compares to $39 million in the same quarter of last year. One number that particularly stands out in Q2 this year is the strong contract inflow, where we had $368 million signed of new contracts during Q2. And that takes our total backlog up to more than $600 million, so $611 million after the -- after Q2, and this does not include PGS. And talking about PGS. The PGS transaction were completed on July 1, 2024. So after about 9 months of careful planning, we're now in the execution phase of that. We have selected managers now at the L1 and L2 level. And we're continuing now down the ranks. We're realizing substantial synergies from this transaction, and that's partly going to driven by moving into the same offices by October 1 this fall. So if we move to the recent highlights, again, the quarter has been really good in terms of signing new contracts. I'm going to go through some of these contracts right now. First slide here is showing the data acquisition activity that we had in Q2 of 2024. And we've added the PGS vessel operations to this picture. And you see that it's an extremely busy slide with about 22 different operations in Q2 of 2024. What the picture also shows you is phenomenal breadth of our business, where we have substantial business activities in all the major basins of the world. You see the mix of PGS and TGS, where PGS is particularly strong in the Northern side of the Atlantic Margin, where TGS stands out, particularly in the U.S. Gulf of Mexico and the Southern Hemisphere of the Atlantic Margin. So a lot of activity in the Atlantic Margin. You see all the dots on the picture there. Also quite substantial activity in Asia Pacific, and this would be particularly countries such as Indonesia and Malaysia for Q2 of 2024. So some of the projects that we have signed up recently. In the Multi-Client business, we have an onshore 3D seismic survey in the Eastern U.S. This survey covers about 200 square kilometers on the western flank of the Appalachian Basin. It's actually utilizing about 75,000 of our existing wells and 145,000 well logs from our existing libraries. So again, it shows you a lot of the synergies that we have internally by having all these data all over the world. And in this particular case, we're talking about the well log data library, where we have more than 10 million wells digitized and collected all over the world, but obviously being very strong in North America. This survey includes seismic subsurface imaging. So we're doing imaging on this, well performance data, formation tops and also basin temperature modeling. It targets multiple exploration zone -- zones, and the acquisition begins in Q4 of this year, where we will have preliminary data available by Q1 of next year and final data sometime by Q3 of 2025. Again, the project is supported by strong industry funding. I'm particularly pleased to announce a new award in imaging. This is a 4-year software licensing agreement for our Imaging AnyWare imaging software. So it's a multiyear software contract with Shell (LON:SHEL) to enhance the data processing and analytics. And Shell's plan is to migrate from in-house software to our Imaging AnyWare. And it really underscores the software sophistication performance and analytics. This is a software that we inherited from the acquisition of ION and then we've spent both time and capital resources to develop it further. And again, very pleased to see our first major contract in terms of licensing this software. So kind of a new business area for TGS. So we have an existing software that is very efficient and working out very well for us, and now clients see the benefits of that and start to show interest in licensing this software. So this is more than a software sale and licensing agreement. It's a long-term collaboration, and we're aiming to improve imaging quality, reducing turnaround time and lower cost, and we're working very closely with our clients to improve in those areas. Next one is on the contract side. So we have 2 new OBN contracts announced recently. One is in North America. This is a 6-month or slightly more than 6-month contract. Contract is with a major. It's a returning client. It's a company who's been working with us in North America before. So it's particularly promising, of course, to see clients come back to TGS. This survey is expected to deliver high-quality seismic data to drive decision-making for that client, and it really reinforces our strong position in North America. We also had a contract, an OBN contract in West Africa announced this morning. We're extending our deepwater OBN campaign well into Q4 of 2024. So we feel most of that white space that we had for that particular crew. And again, same thing, this delivers industry-leading seismic data for more and better decision-making capabilities for that particular client. Moving on to New Energy Solutions, and this is obviously where we see the part of the benefits with merging with PGS. So we see a lot of synergies between the 2 different businesses. The first contract is ultra-high resolution 3D in Europe. It's a 45-day contract. It's awarded in Q3 to support offshore wind and data characterization. We're going to use the Ramform Vanguard, and the survey is going to begin in Q3 this year. We will manage the data imaging in-house. And again, this technology of ultra-high resolution 3D will enhance the detailed subsurface data for shallow targets and offer superior efficiency and shorter lead times for the clients. Project really underscores a growing offshore wind site characterization market. So we've been following PGS for quite some time and seen some of those or noticed some of those contracts that PGS have signed over the past 12 months to 18 months and obviously, looking forward to be part of that. And this is a rapidly growing market, where both PGS, but also TGS through the acquisition of Magseis have very strong market positions and in a market that will continue to grow for the next decades. On top of that, we announced a Wind and Metocean Campaign Offshore California. This is a new measurement campaign off the Central Coast of California, and you see the map in the lower left-hand corner. It's a 3-year initiative to support floating wind farm development. And this is one of these projects where we use these LiDAR buoys to provide crucial data on wind speed, wave heights, ocean currents and different types of data relevant for wind developers. The data will be accessible through our Wind AXIOM platform. It's a digital platform that clients can access directly, and it supports, of course, investments and planning decisions for future offshore wind projects. It marks our ninth LiDAR deployment in 2 years and really highlighting our commitment to offshore wind energy advancement. And we already start to see the synergies between the two. So we -- if you look at all these LiDAR deployments that we've done and also the asset-based high resolution 3Ds that we're doing with either Magseis or PGS, there's a lot of synergies between the two. And we're starting to build a quite substantial data library also for offshore wind, which is great to see. And it really, really tells the story of TGS being able to adapt to the changes in the market and take advantage of growth in areas outside the traditional oil and gas. So let's hand it over to the financials, and Sven Borre is going to go through that, and then I will be back for the outlook section. Thank you very much.
Sven Larsen: Thank you for that, Kristian. And good morning, everyone. As Kristian already said, the PGS transaction closed on 1st of July. It means that for financial purposes, we did not include PGS in our Q2 P&L, and it's not included in the 30th of June balance sheet either. So the only traces you will find of PGS in these numbers are some one-off transactions costs that have been charged $6.2 million in this quarter. So I'll start by going through the revenue numbers. So you can see early sales on the top left-hand chart. We had $49 million in the quarter. It is a bit down compared to what we saw last year and also what we -- in Q3 last year and also to what we saw in Q1, and that has to do with a lower investment level. We still have a very high early sales rate of 94%. So our customers still show a lot of interest in the -- in this -- in the new surveys that we are acquiring. And we expect, of course, early sales to increase in the second half of the year in line with increased Multi-Client investments. So for late sales on the top right-hand chart, we recognized $66 million of Multi-Client late sales in the quarter. It's a bit up compared to Q2 of last year and slightly down compared to Q1. You should note that there were no special triggering events in the quarter. So no significant licensing rounds driving sales and no transfer fees. So it's a pretty clean number in that respect. On proprietary sales revenue, on the bottom left-hand chart, you can see that we recognized $100 million in this quarter. It's significantly up compared to Q1. And also looking ahead to Q3, we continue to expect strong sequential increase. And then this resulted in total revenues of $215 million, a little bit down from the $227 million that we had in Q1 and also down from the $241 million that we showed in the same quarter of last year. If you look at POC revenues by business unit, we see Multi-Client and Imaging combined had $107 million in the quarter, a bit down compared to the same quarter of last year due to lower early sales, mostly. Digital Energy Solutions continued to show very strong underlying growth, although it is a bit lumpy from quarter-to-quarter. So this quarter, we had $16 million of revenues in the Digital Energy Solutions business unit, which is -- which represents 62% growth compared to the same quarter of last year. Then for the acquisition business unit, which is -- which includes our OBN activities. We had $92 million of revenues this quarter, a little bit down compared to the $107 million that we had in the same quarter of last year but significantly up compared to the Q1 level. And as you can see, we had very limited internal activity. These are projects where we use our own OBN activities for -- or our own OBN capacity for Multi-Client projects. So only $1 million worth of that kind of activity in this quarter. Then moving on to the cost side of the business. Cost of sales, $42 million. Here, you should note that it should be seen in context with the IFRS 16 depreciation related to vessels that we use in these operations that we have leased on contracts that last more than 12 months. I'll come back to that later. But you can see this number increase a little bit sequentially in the quarter to $42 million from $35 million in Q1. And that, of course, has to do with the higher activity level. On personnel costs, we stay steady at $32 million, which is the same level as you've seen in the past few quarters. Other operating expenses were $20 million in the quarter. But here, you should note that it includes a little bit more than $6 million in nonrecurring costs related to the PGS transaction. Going forward, this number, the nonrecurring transaction-related costs should be much lower. So we don't expect to charge more than a few millions in the next couple of quarters. And this gave an EBITDA of $121 million in the quarter compared to $132 million in the same quarter of last year. And if you adjust for the nonrecurring transaction costs, we had approximately $128 million or $127 million of EBITDA in the quarter. Looking at the amortization, it's pretty normal given the level of early sales that we had in the quarter. So the straight-line amortization remains steady at around $40 million, $39 million in this quarter. And the POC accelerated amortization, which is mostly related to early sales, came in at $22 million in the quarter and no impairments were charged in this quarter. On the depreciation side, we had $33 million recognized in this quarter. You can see a step-up in depreciation from between Q3 and Q4 of last year, and that is related to these IFRS 16 leases that we entered into at that point in time. So of the $33 million, it's approximately $20 million of IFRS 16 leases included in that number. But again, I'm coming back to more details on that on a later page. This gave us an operating result of $28 million in the quarter, which is $34 million, if you adjust for the nonrecurring transaction costs that were charged in the quarter. Looking at the Multi-Client investments, they were $52 million in the quarter, and the early sales rate was 94%, as I alluded to earlier as well compared to 77% early sales rate and $86 million of Multi-Client investments in the same quarter of last year. So we are going to -- we haven't updated the Multi-Client investment guidance for this year following the closing of the PGS transaction. We intend to do that on the Capital Markets Day on the 29th of August. But for Q3, you should expect Multi-Client investments to come up to around $120 million. But we will return with more details on that in the Capital Markets Day. And then if we look at the cost of sales and the IFRS 16 adjustment, you see that we had, as we also discussed earlier, $40 million of cost of sales in this quarter. But in order to analyze the underlying profitability of our proprietary revenues, you also need to include the IFRS 16 depreciation related to vessels that we have on lease for more than 12 months. So if you include that, that -- or that, that accounted for $20 million in addition. And including that, we had a gross margin of 34% on our proprietary activities. So a strong development in the gross margin, which is a testament to the strong operational performance in the OBN business. And then although PGS has not been included in our Q2 numbers, we are showing here some -- a quick summary of PGS' financials for Q2 on a stand-alone basis. You will find more details about this in the appendix. So this slide just shows a quick summary of the highlights. You can see on the top left-hand chart, a summary of the POC revenues or produced revenues as PGS used to call it. Contract revenues constituted $74 million in the quarter. Prefunding revenue were $59 million, late sales, $41 million and imaging and other types of revenues accounted for $5 million, $179 million in total. This is to be compared with $186 million in the same quarter of last year. EBITDA in PGS was $71 million in the quarter, but you should note that this included one-off transaction costs related to the merger of approximately $13 million. So $84 million in EBITDA, if you adjust for the one-off transaction costs. And same on the operating result also include the same nonrecurring costs, of course, minus $17 million in an POC operating result in the quarter, but minus $4 million adjusting for the nonrecurring items. The Multi-Client investments in PGS amounted to $46 million and the early sales rate was as high as 130%. This slide here shows the bridge between our POC revenues and the IFRS revenue. So the IFRS revenues were a little bit higher than the POC revenues in this quarter. But as you know, the IFRS revenues jumped up and down quite a bit between the quarters and even more so than the POC revenues do. And this takes us to the IFRS profit and loss, $224 million of revenues, EBITDA of $131 million, operating result of $55 million, result before taxes of $49 million, which -- and after subtracting tax cost of $13.5 million, that gave us a net result of $35.2 million or corresponding to an EPS of $0.27 in the quarter compared to $0.14 -- or sorry, $0.18 in the same quarter of last year. Then to the IFRS balance sheet, not too much to note here, other than observing that we continue to have a very strong balance sheet. You should note that the other noncurrent asset line contains the loan that we extended to PGS in Q1 of this year, and we drew down on our RCF to fund that. So there is also $60 million of interest-bearing debt included in the other noncurrent liabilities line. But this will -- the inter -- this will become an intercompany loan, obviously, in -- from now and onwards. Looking at cash flow. You should note that this is the IFRS cash flow and our POC cash flow would look somewhat different line by line. So you see that we had $89 million of net cash flow from operating activities in this quarter. As we talked about earlier, we had $121 million of POC EBITDA in the quarter. So as you can read from that, we had quite a bit of working capital build and build of other preliminary balance sheet items in this quarter. And this, of course, had a negative impact on cash flow relative to what you otherwise would see. But this levels out over time, and we expect cash flow to be significantly stronger in the second half of the year than it was in the first half of the year. We had net cash flow to -- used in investing activities of $80 million in the quarter, and we had net cash flow to financing activities of minus $41 million in the quarter, which meant that we had a net cash flow negative of $31 million in the quarter, which resulted in a cash balance of $125 million for TGS stand-alone towards the end of the quarter. But as I said, we expect to see significant improvement in cash flow in the second half of the year. And the Board has resolved to continue to pay a dividend of USD 0.14 per share corresponding to NOK 1.51 per share this quarter. The ex date is set to 25th of July, and the payment date will be on the 8th of August. And including this dividend, TGS has now returned more than $1.5 billion to our shareholders through dividends and buybacks since we started to pay a dividend in 2010. By that, I leave the word back to Kristian, who will take you through the outlook section.
Kristian Johansen: Thank you, Sven. So my first slide is the heading here, stating the obvious oil and gas remain the most important energy source, and you can clearly see that from the bar chart on the left-hand side. So again, there's been a lot of recent long-term forecast for oil and gas, and they've all increased over the past few months. The one we're referring to here is BP (NYSE:BP)'s World Energy Outlook 2024 that came out a couple of weeks ago. And what it basically says is it points at the combination of energy demand continuing to increase, while clean energy switch slows. And this is finally being updated in all the figures that we see. And as a result, you will see that oil and gas is likely to play an important role in the foreseeable future. It actually keeps growing, as you see with gas. With oil, it keeps growing until 2032-ish. And despite the very strong growth in renewable energy capacity, you will see more oil and gas also in the future, and you will not only see that for the next 5 years or 10 years, but in the matter of gas, you will see that even growing all the way until 2050. What we also see from the chart is that the phasing out of coal is -- although it's a prioritized challenge all over the world, it's -- coal is actually likely to still make up a significant part of the energy mix even in 2050, where you see coal in 2050 is pretty much at the same level as it was back in the 2000. If we move on and we look at the U.S. onshore production, what we conclude here is that near-term growth in production in the U.S. onshore is quite unlikely. And we're actually using some of our own data to prove that. So as I said initially, TGS has the largest onshore well database in the world with about 10 million digitized wells. On top of that, we have production data. We have completion data, and we have a lot of other data, which makes us actually better positioned than most others in terms of projecting the future of that market. So if you look on the left-hand side, you see that oil and gas production from U.S. onshore has leveled off. It's actually come down quite significantly over the past couple of months. At the same time, the number of drilled and uncompleted wells, which we call DUCs has declined lately, which means that production growth requires significant increase in rig count. And what you see in the middle graph there is that the rig count is not increasing, it's actually come down, and then it's flattened out over the past 12 months. So our own DUC estimate is significantly lower than the EIA estimates. And again, I want to highlight that we probably have more data than anyone else in terms of coming up with this estimate. And that suggests even less potential for near-term production growth. So for those of you who expect that U.S. onshore is going to sort the production challenges of the world, our data actually proves them wrong, and we don't think that that's going to be the case. We can also see that on the next slide, which shows that the Permian decline rates are increasing. So all production from the Permian, which is by far the largest basin in the onshore U.S. has increased steadily over the past years, as you can see on the -- from the graph on the left-hand side, and that is compensating for decreasing production from other basins. However, as you see on the right-hand side, as drilling activity has intensified, decline rates have increased. And again, this helps to suggest lower growth potential in the long-term even from the important Permian Basin. And again, we're using our own data on this as well, and TGS has a lot of data in these basins and obviously are in a great position to put out estimates as we do today. And then if you look at renewables and CCS or CCUS, this really drives the need for data and insight. You see phenomenal growth in all areas, strong growth in renewable power generation. And with that, you will see an increased need of data-driven decision support to navigate some of these challenges caused by complex regulatory frameworks, technical obstacles and challenging commercial environment. On the middle graph, you see the solar electricity generation, which is also increasing. It's probably growing faster than any other segment of the renewable industry. And fortunately, TGS is well positioned there as well with the acquisition of Prediktor that we made back in 2022. What we also know is that reaching net 0 goals requires extensive use of carbon capture technologies, and we finally see growth coming there as well. So if you look on the right-hand bar chart, you see 2 different scenarios presented by BP. You see the current trajectory and you see the net 0 assumption. And what you see in both alternatives, although they differ quite a bit is a phenomenal growth needed in terms of CCS investments between now and 2050 in order to make sure that we can continue to provide the world with energy that it is likely to need. So again, TGS offers high-quality data, insight and software solutions to help clients making better decisions throughout the energy value chain. And I'm particularly proud of the initiatives that we've shown in renewables and CCS over the past few years. And I think the transaction with PGS will strengthen the company even further in terms of being positioned for this growth going forward. I've been using a lot of TGS specific data in this presentation. You see the bar chart on the left-hand side. This is from TGS own database provided by 4C Offshore. It's an acquisition of a U.K. company that we acquired back in 2022. You can click on the link at the bottom of the slide, and you will get some of that same data and insight that 4C provides. So very proud of showing the macro session today, where we're actually using a lot of our own data, and it really proves how TGS has moved, diversified the business and become more of -- more than a data collection company. We're actually a data and insight provider as well. So again, subscribe for unmatched offshore wind intelligence through the TGS 4C Offshore database that you will find at the bottom of this slide. So moving over to the acquisition activity plan. What you see here is that we're -- and this is again only TGS. It doesn't include PGS. But what you see is that we sold out for Q3 of 2024. So you see a couple of white spots in Q2. And you see one significant white spot in Q1. And again, we had about $100 million of revenues in this business in Q2. As you can read from this, we're sold out, and we have full utilization in Q3. So as Sven alluded to in his presentation, we're going to have a strong quarter for our acquisition business in Q3, and we still have some time to fill up further backlog for Q4, which means that Q4 will probably be a strong end of the year as well. So very proud about how the team have sorted some of the challenges that we had at the start of the year, but we saw some increased competition from companies who definitely price their services different to what TGS does and -- but we've been able to come back. We've been able to fill a backlog of strong profitable projects, combined with very strong execution of ongoing projects in Q1 and Q2. And that's something clients have realized. And as a result, you see the strongest order inflow ever for the acquisition business in Q2. So very optimistic about this business going forward. I think, again, you will see a couple of quarters now with significant increase in activity compared to the previous two quarters. And that is also illustrated on the contract backlog and inflow on this slide. So if you start with a contract inflow of $368 million, is the highest contract inflow we've had since Q4 of 2013. And obviously, everyone who were speculating that our OBN business was not going to grow, we can definitely prove you wrong with our numbers for Q2 in terms of order inflow. And that means that our backlog is very strong, and it's above $600 million as we speak. And that's even before we include PGS to our backlog. So it's definitely going to be a goal for the combined company to build a backlog of close to or above $1 billion, which is quite unique in this setting, and it sets us up really well for the future in terms of growing revenues in 2025 and so on. You also see on the right-hand side, you see the timing of the expected recognition of our acquisition backlog, and that helps you in terms of phasing out the revenue profile for our acquisition business. And then we have a Capital Markets Day on 29th of August. It's going to start at 2:00 p.m. and go from 2:00 p.m. to 4:00 p.m. It's going to be at House of Oslo, which is in the Ruselokkveien 34, and it's followed by live webcast. You're going to meet myself, our CFO and other executives, and we will address a number of topics such as our unique position and updated strategy for the combined company. We're obviously going to provide more details about the PGS business as well and some of our plans going forward. We're going to show you the most recent energy data market outlook. Our future financial reporting structure is obviously important. Merger synergies. We'll give you an update on that as well. Talking about capital structure and allocation of cash is going to be important for you, and we'll provide more guidance on that. And then obviously, update our overall guidance and including PGS in that guidance for the remainder of 2024. So with that, I just want to summarize the presentation today. So we had revenues of $215 million, and this is TGS stand-alone. We had early sales rate of 94%. It continues a positive trend we've seen on the early sales rates. And we've invested slightly less. So our investment is going to be back-end loaded for 2024, but we still think we can keep a very high early sales rate on those investments, which means that our revenues and our early sales are going to improve in the second half compared to the first half. We had an EBIT of $28 million compared to $39 million in the same quarter of last year. Very strong contract inflow. Probably the key highlight of this report is that we had new contracts signed in the quarter of $368 million and a total backlog of more than $600 million, and that doesn't even include PGS. And this is the backlog at the end of Q2. And again, very excited about the PGS transaction. It was completed on July 1st. We're well into the execution phase of that. And looking forward to come back and talk to you at the Capital Markets Day on the 29th of August and provide more details about this transaction and our plans going forward. So with that, I want to open up for questions. And obviously, thank you for your attention today.
A - Bard Stenberg: Yes. We have a couple of questions from the web already. And as a reminder, please type in your questions to -- on the platform so that we can address them to your management. So first question is from John Olaisen in ABG. PGS vessel utilization continued to be an issue in Q2. Now that the vessels are your assets, are you taking any concrete measures to improve the vessel utilization going forward?
Kristian Johansen: Yes. I mean this is part of the rationale for the transaction, and we haven't been able to work together very closely until July 1st, of course. So, of course, this is one of the areas where we see substantial synergies. Obviously, we're going to make sure that we utilize PGS vessels for our own projects. That's a low-hanging fruit. We're going to see synergies in terms of selling OBN and streamers. I think we are already coordinating and combining the sales teams in that regard. And I think we see a very promising market for offshore wind, where TGS probably has lacked some or combination capacity and technology, and it's going to fill an important gap in terms of that as well. So we're not too concerned about that. I mean, there's only 16, 17 vessels active in the world right now, and PGS represents about 7 out of those. So I think unless a market would get any worse in the near or medium future, we think we can definitely be in a good position to increase utilization going forward.
Bard Stenberg: Then we have a question from Christopher Mollerlokken in SB1 Markets. I know it's still early days, but anything you would like to highlight after you completed the acquisition of PGS early July?
Kristian Johansen: I think we're very excited. I think the cultural integration or the people integration have gone really well so far. I think the cultures are probably more similar than you would expect. Haven't really seen a big of major hurdles in that regard. So I think that's good. Very, very strong professional organization at both sides, which are obviously great to work with. We see -- yes, there was a concern about vessel utilization in Q2. I think that's somewhat temporary. I think when I look into Q3, it looks pretty good. If you look at the tender stats of PGS, it looks pretty good going forward. So again, we see more positives than we see negatives. We definitely see substantial synergies between the two. And we'll come back to that at the Capital Markets Day in terms of further details. But so far, so good. We've only owned the company for 18 days, but we're quite excited.
Bard Stenberg: Next question is from Lukas Daul in Arctic Securities. That's to you, Sven Borre. In Q2, you booked approximately $90 million in merger-related costs. Can you give an indication of how much is remaining for the coming quarters?
Sven Larsen: Yes, it shouldn't be much in terms of the -- in terms of integration costs and all of that. There may be some onerous lease expenses charged and some noncash costs, potentially a little bit of severance expenses. So I would expect maximum a few more million dollars charge mostly in Q3. And then, of course, we will pay the dividend compensation part of the proceeds for PGS of approximately $18 million was paid in early July. So that is obviously not charged for the P&L, but it's a cash flow element.
Bard Stenberg: Yes. John Olaisen has a follow-up in terms of the content of the Capital Markets Day, where he assumes that we will come back to how you plan to report financial figures, including PGS figures. But would it be possible to give some indications of the reporting before the Capital Markets Day?
Sven Larsen: We don't want to go in too much detail, but it's natural that we report on different segments like Multi-Client separately, streamer vessels and OBN separately, imaging separately, NES separately. That's what we're looking at right now. But we are in the evaluation phase of structuring that up, and we will -- we need to be patient, and we will come back with more details.
Bard Stenberg: Then we have a question from private investor. Is it still your plan to switch from dividends to buybacks following the PGS acquisition?
Sven Larsen: Again, that we -- we will come back to that, but it's not likely that we completely switch to buybacks from dividends. We will probably still keep a base level of dividend, but potentially a more active use of buybacks than we have seen before. That's what we can say at that at this stage.
Bard Stenberg: Very good. Then we have a question from an investor. Following the PGS transaction, the hope is that debt is both paid down fast and the refinance rate on that decreases. It seems obvious for history that PGS only works as a business when there's no debt on the balance sheet. Can you confirm that you intend to have a net cash balance sheet at the earliest possible time?
Sven Larsen: We are probably not going to all net cash balance sheet. That's not the ambition. But we will prioritize reducing net debt from the initial levels that we will have or had right after closing. So -- but we will -- we feel comfortable, and we think it's right for a company with this structure, this cash flow profile and this asset base to carry some debt but less than we have right now. And again, we will come back with more details at the Capital Markets Day.
Bard Stenberg: And then another question from the investor. That's to you, Kristian. Lots of good news on acquisition here in the presentation, but a little on Multi-Client projects. Can you give us an indication or some comments on this area, please?
Kristian Johansen: Yes, I probably gave an indication that we expect to see investments are going to be significantly higher in the second half of the year than in the first half of the year. I think the increase in order inflow and backlog was not driven by Multi-Client. So that probably what you can read into that is that there will be some new or hopefully will be some new announcements in Multi-Client projects between now and the Capital Markets Day. So we're looking at some big Multi-Client projects that are probably going to start in the second half of the year. Not all of them have been signed up yet, but we are in the phases of signing up some of that. So you can probably expect that we're still going to meet our investment guidance for the year, and you see that we're way short of that if you just double the investments that we had in the first half. So we are going to invest more in the second half as some of that will be announced over the next weeks or months.
Bard Stenberg: Then we have another question from Lukas Daul in Arctic Securities. You had CapEx, excluding Multi-Client investments of approximately $20 million per quarter in the first half. What is driving that?
Sven Larsen: We -- it's on the OBN side. We invested in a new streamer set in this year. That cost us a little bit more than $20 million in total -- $25 million in total. So that's the main explanation why it's been a little bit higher than what you normally would see.
Kristian Johansen: Yes. Basically, new nodes for being used in the North Sea as part of a long-term contract.
Sven Larsen: Yes. Nodes. Yes.
Bard Stenberg: Okay. Then we have a question from [Kim Andre Uggedal] in SEB. Can you provide an update on PGS backlog by the end of Q2?
Kristian Johansen: We'll come back to the combined backlog figure by -- at the Capital Markets Day. And again, we've only been together for about 18 days. And part of the reason that we're going to have a Capital Markets Day is to provide more details on the PGS situation.
Bard Stenberg: Very good. Then there is not any further questions on the web. We could pause for a minute to see if there's any last questions coming in. I don't see any further questions. So then I'll leave it to you Kristian for any concluding remarks.
Kristian Johansen: Yes. Thank you. Thank you very much, and thanks for your attention today. And I think we're looking forward to see you at the end of August on the 29th. It's going to be a webcast as well. So all of you are going to get a chance and opportunity to hear us talk about the future and obviously, the strategy of the combined company, and we're going to talk more about capital allocation as well. So very excited about the future. Very excited about improving our backlog substantially, which means that we have a very good position getting us into the second half of the year and obviously 2025. So I wish you all a good summer, good vacation for those of you who have time to take up that, and looking forward to see you on the 29th of August. Thank you very much.
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