350 million revolving credit facility and the USD 600 millionTerm Loan B generally requires the Company to ap- ply 50% of excess cash flow to repay outstanding borrowings for periods when the senior leverage ratio (total indebtedness-unsecured debt)/(pre- ceding 12 month EBITDA- preceding 12 month MultiClient investments) exceeds 2.0:1 or if total leverage ratio (same as senior leverage ratio, but excluding unsecured debt) exceeds 2.5:1. Excess cash flow for any periods is defined as net cash flow provided by operating activities during that pe- riod less capital expenditures made in that period or committed to be made in the next period, less debt service payments and less accrued income taxes to be paid in the next period.
As a result of the global economic and financial crisis, capital markets are generally less predictable and avail- able than historically experienced. This represents an increased risk for all companies with respect to meeting possible future funding needs.
PGS is aiming for asset sales of USD 200 million in 2009 to improve liquid- ity of the Company and better position us in a weaker market. Other meas- ures taken to improve liquidity are to defer certain capital expenditures, reduction in MultiClient investments, releasing chartered capacity and the Company has stacked some of its 2D/ source vessels.
PGS has a solid structure on its exist- ing debt with no material scheduled maturities until 2012 and financial covenants that are not unduly restric- tive.The Company does not currently anticipate issues with financial cov- enants in 2009. However, depending on future market developments PGS may need to take actions to meet financial covenants or refinance debt in subsequent years.
Commodity Risk In the operation of seismic vessels PGS use a substantial quantity of fuel. The Company is therefore exposed to changes in fuel prices. Based on the Company's fuel consumption in 2008, if fuel prices were to increase by 10%, fuel costs would increase by approxi- mately USD 1 million per month of operating cost. PGS does not hedge
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this exposure, but is seeking cost adjustments on long-term contracts. The price for oil is a primary driver for demand for PGS' services and future profitability.
Shares, Share Capital and dividend PGS has 180,000,000 shares issued and outstanding, all of which are of the same class and with equal voting and dividend rights. Each share has a par value of NOK 3.
PGS' ordinary shares are listed on the Oslo Stock Exchange, under the symbol “PGS”, denominated in Nor- wegian kroner (NOK).The Company delisted from the NewYork Stock Exchange (NYSE) effective July 20, 2007 with the deregistration from the US Security Exchange Commission becoming effective October 18, 2007. The PGS share is still trading as an American Depositary Share (ADS) on the US Pink Sheets, under the symbol “PGSVY.” Quotes are denominated in US dollars and each ADS represents one share.
No ordinary dividend will be paid to shareholders for 2008. In general, any future dividend will be proposed to the Annual General Meeting (AGM) based on the Company's results of operations and financial condition, future business prospects, any appli- cable legal or contractual restrictions and other factors that the Board of Directors consider relevant.
At the AGM on May 7, 2008 the authorization for a share repurchase program for up to 10% of the Com- pany's share capital, initially given in 2006, was extended for another year. The Company expects to propose an extension of the authority to the AGM in May 2009.
As of December 31, 2008, PGS holds a total of 3,806,989 own shares, representing 2.11% of total shares outstanding.The Company uses share repurchase primarily as a means of adjusting its financial leverage within its targeted range. PGS expects to use most of the expected cash flow in 2009 for continued execution on com- mitted projects and to reduce debt.
outlook The seismic industry has been
impacted by the rapid changes in the financial markets and lower oil price. During 2009, the Company expects that there will be a net decline from 2008 in exploration and production spending among clients, causing mar- gins for new contracts to decrease. At the same time, there is an increase in marine seismic capacity. PGS does not expect all the vessels announced to be delivered, due to cancellations, caused by financing difficulties, and delays.The Company further expects that stacking and scrapping of older vessel will mitigate some of the im- pact of new capacity in the market.
The long-term fundamentals are still well intact, especially for more ad- vanced seismic since the easy oil has been extracted. Looking at the declin- ing reserve replacement ratio for the industry and the forecasted decline in oil supply it is likely demand for seis- mic services will pick up over time.
In a temporarily weaker market, PGS will focus on cost reduction and cash generation.The Company has been proactive in adapting to a tougher market and is focusing on reducing overhead and operating costs. PGS is also reducing its ambitions for new ventures by optimizing R&D spending and re-evaluating the timing of EM and OptoSeis®.
PGS has a competitive advantage in its cost efficient and uniform fleet.This will become important for the Com- pany in order to maintain industry leading margins and generate robust cash flow going forward.
In the Marine segment, PGS enters 2009 with a healthy order book cover- ing approximately eight months of work. Still, for the year as a whole, the Company expects Marine contract revenues to decrease as a result of lower activity and lower prices.
PGS expects to invest less in Multi- Client in 2009 compared to 2008. The Company seeks to maintain high pre-funding.
Capital expenditures are expected to decrease compared to 2008, mainly as a result of the Company's focus on reducing capital expenditures and the decision to defer any further commit-
ments of seismic equipment for PGS Artemis, due to delay of the vessel. The Company is considering equip- ping the vessel with existing equip- ment from its 6-streamer fleet.
In 2009, PGS expects Onshore to perform weaker than in 2008.
PGS emphasizes that forward looking statements contained in this report are based on various assumptions made by the Company that are beyond its control and that are subject to certain risks and uncertainties as disclosed in the Company's filings with the Oslo Stock Exchange. Accordingly, actual results may differ materially from those contained in the forward look- ing statements.
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