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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 6-K
Report of Foreign Issuer
Pursuant to Rule 13a-16 or 15d-16 of
the Securities Exchange Act of 1934
For the Month of August 2000
PETROLEUM GEO-SERVICES ASA
(Translation of registrant's name into English)
Strandveien 50E
P.O. Box 89
N-1325 Lysaker
Norway
(Address of principal executive offices)
[Indicate by check mark whether the registrant files or will
file annual reports under cover Form 20-F or Form 40-F.]
Form 20-F |X| Form 40-F
--- ---
[Indicate by check mark whether the registrant by furnishing
the information contained in this Form is also thereby furnishing the
information to the Commission pursuant to Rule 12g3-2(b) under the Securities
Exchange Act of 1934.]
Yes No |X|
--- ---
THIS REPORT ON FORM 6-K IS HEREBY INCORPORATED BY REFERENCE IN
THE REGISTRATION STATEMENT OF PETROLEUM GEO-SERVICES ASA ON FORM S-8 (SEC
REGISTRATION NO. 333-6420) AND IN THE PROSPECTUSES CONSTITUTING PART OF THE
REGISTRATION STATEMENTS OF PETROLEUM GEO-SERVICES ASA ON FORM F-3 (SEC
REGISTRATION NOS. 333-90379, 333-9518 AND 333-9520) AND PART OF THE REGISTRATION
STATEMENT OF PETROLEUM GEO-SERVICES ASA ON FORM F-4 (REGISTRATION NO. 333-9702).
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
You should read the discussion under this caption in conjunction with
our consolidated financial statements and the related notes we have previously
filed with the Securities and Exchange Commission and those included elsewhere
in this report. This discussion is based upon, and such financial statements
have been prepared in accordance with, United States generally accepted
accounting principles. The following information contains forward-looking
statements. You should refer to the section captioned "Forward-Looking
Information" in our most recent annual report on Form 20-F for cautionary
statements related to forward-looking statements.
Second Quarter of 2000 Compared with Second Quarter of 1999
Revenue for the second quarter of 2000 of $236.4 million represented a
19% increase over 1999 second quarter revenue of $199.3 million. The geophysical
services group contributed $123.3 million of 2000 second quarter revenue, an
increase of $5.4 million over the same period of 1999, primarily due to improved
pricing in the contract seismic market, partially offset by lower period over
period multi-client sales revenue. Multi-client sales represented $61.2 million
of total geophysical services revenue for the second quarter of 2000, a decrease
of $7.0 million over the same period of the prior year. Production services
revenue for the 2000 second quarter was $113.1 million, an increase of 39% as
compared to the same period of 1999. This increase was primarily due to revenue
from the Petrojarl Varg, acquired in July 1999, and higher revenue from the
operations of Atlantic Power Group Limited, the Petrojarl Foinaven and the
Petrojarl 1, which is currently employed at the Kyle field under an early
production contract.
Cost of sales increased by $26.1 million, or 33%, from the second
quarter of 1999 to the second quarter of 2000. This increase primarily reflects
greater activity in our production services business, as noted above, and an
increase in the portion of our geophysical services business performing contract
work. This latter factor resulted in a reduction in amounts allocated to the
multi-client library in the 2000 second quarter as compared to the same period
of 1999.
Depreciation and amortization for the 2000 second quarter increased by
$3.4 million, or 5%, from the same period of 1999. This increase was primarily
due to greater activity in our production services business and an increase in
the portion of our geophysical services business performing contract work,
partially offset by lower amortization of our multi-client library (although the
amortization rate of 57% for the 2000 second quarter remained relatively
unchanged from prior periods) due to lower multi-client sales as compared to the
same period of 1999.
Selling, general and administrative costs for the 2000 second quarter
increased by 10% over such costs for the 1999 second quarter. The increase
was generally due to increased activity in the production services business in
the 2000 second quarter as compared to the same period of 1999. As a percentage
of revenue, these costs declined to 8% in the 2000 second quarter from 9% in
the 1999 second quarter.
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There were no unusual items during the 2000 second quarter. Net unusual
items for the 1999 second quarter included $7.0 million in asset impairments
caused by market conditions at that time.
Operating profit for the three months ended June 30, 2000 was $42.1
million, resulting in an operating profit margin of 18%, an increase from 17%
for the same period of 1999 before unusual items. For the three months ended
June 30, 2000, operating profit from the geophysical services and production
services segments was $14.7 million and $27.4 million, respectively.
Net financial expense for the 2000 second quarter was $12.0 million
greater than the comparable 1999 second quarter expense. The increase resulted
primarily from our issuance in July 1999 of $200 million principal amount of
senior notes related to the acquisition of the Petrojarl Varg and generally
higher average levels of indebtedness during the 2000 second quarter.
Other income, net for the three months ended June 30, 2000 decreased by
$7.0 million as compared to the same period of 1999. Other income, net for the
second quarter of 1999 included a $9.7 million U.K. lease gain associated with
the Ramform Vanguard, which was delivered in April of 1999. No such gains were
recorded during the second quarter of 2000.
An income tax benefit was provided on results from operations in the
2000 second quarter as a result of (1) losses relating to operations in high-tax
jurisdictions resulting from the current conditions in the oilfield services
market, and (2) significant income earned in low or no-tax jurisdictions. Since
our tax structure generates tax benefits under less than favorable market
conditions, we expect to continue recording tax benefits as long as market
conditions remain depressed.
Six Months ended June 30, 2000 Compared with the Six Months ended June 30, 1999
First half 2000 revenue of $449.1 million represented a 29% increase
over 1999 first half revenue of $348.0 million. The geophysical services group
contributed $225.0 million of 2000 first half revenue, an increase of 18% over
the same period of 1999, primarily due to improved pricing in the contract
seismic market and higher period over period multi-client sales revenue.
Multi-client sales represented $117.5 million of total geophysical services
revenue for the first half of 2000, an increase of $12.7 million from the same
period of the prior year. Production services revenue for the first half of 2000
was $224.1 million, an increase of 42% as compared to the same period of 1999.
This increase was primarily due to revenue from the Petrojarl Varg, acquired in
July 1999, and higher revenue from the operations of Atlantic Power Group
Limited, the Petrojarl Foinaven and the Ramform Banff.
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Cost of sales increased by $66.0 million, or 47%, from the first half
of 1999 to the same period of 2000. This increase primarily reflects greater
activity in our production services business, as noted above, and an increase in
the portion of our geophysical services business performing contract work. This
latter factor resulted in a reduction in amounts allocated to the multi-client
library in the first half of 2000 as compared to the same period of 1999.
Depreciation and amortization for the first six months of 2000
increased by $22.3 million, or 21%, from the same period of 1999. This increase
was primarily due to greater activity in our production services business and an
increase in the portion of our geophysical services business performing contract
work, as noted above, and higher amounts of multi-client amortization due to
higher period over period multi-client sales. The multi-client amortization rate
for the first half of 2000 was 57%, consistent with prior periods.
Selling, general and administrative costs for the first half of 2000
increased by 7% over such costs for the first half of 1999. The increase was
generally due to increased activity in the production services business in the
first half of 2000 as compared to the same period of 1999. As a percentage of
revenue, these costs declined to 8% in the first half of 2000 from 10% in the
first half of 1999.
There were no unusual items during the first half of 2000. Net unusual
items for the first six months of 1999 included $52.1 million in employee
termination costs, lease termination/revision costs, vessel derigging costs and
equipment impairments directly related to restructured operations, and $15.9
million in asset impairments caused by market conditions at that time.
Operating profit for the six months ended June 30, 2000 was $69.2
million, resulting in an operating profit margin of 15%, unchanged from the same
period of 1999 before unusual items. For the six months ended June 30, 2000,
operating profit from the geophysical services and production services segments
was $21.1 million and $48.1 million, respectively.
Net financial expense for the first half of 2000 was $63.2 million,
which was $22.3 million greater than the comparable 1999 period. The increase
resulted primarily from our issuance in July 1999 of $200 million principal
amount of senior notes related to the acquisition of the Petrojarl Varg and
generally higher average levels of indebtedness during the first half of 2000.
Other income, net for the six months ended June 30, 2000 decreased by
$15.3 million as compared to the same period of 1999. Other income, net for the
1999 period included $19.1 million of U.K. lease gains associated with the
Ramform Victory and the Ramform Vanguard, which were delivered in January and
April of 1999, respectively. No such gains were recorded during the first half
of 2000.
An income tax benefit was provided on results from operations in
the first half of 2000 as a result of (1) losses relating to operations in
high-tax jurisdictions resulting from the current conditions in the oilfield
services market, and (2) significant income earned in low or no-
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tax jurisdictions. Since our tax structure generates tax benefits under less
than favorable market conditions, we expect to continue recording tax benefits
as long as the market conditions remain depressed.
FINANCIAL CONDITION
Capital Requirements
Our future capital requirements consist primarily of capital
expenditures related to:
o seismic vessels and equipment
o floating production, storage and offloading vessels and equipment
o investments in our 3D multi-client library
o computer processing, data management and reservoir processing
equipment
o working capital related to the growth and seasonal nature of our
business.
In prior years, our capital requirements have related not only to
normal, ongoing equipment replacement and refurbishment needs, but also to
increases in capacity, primarily for seismic data acquisition operations and
floating production, storage and offloading operations. During 2000, we expect
to significantly reduce capital expenditures related to capacity additions.
Capital expenditures of $14.8 million and $34.9 million in the second
quarter and first six months of 2000 related primarily to ongoing maintenance
capital expenditures for our seismic business and selected investments in our
existing production services business.
During the second quarter and the first six months of 2000, we invested
$61.5 million and $133.4 million, respectively, in our multi-client library,
primarily in strategic, deepwater seismic surveys in Brazil and in the West
African and Asia Pacific regions. These investments reflect our evaluation of
the future market demand for non-exclusive surveys.
We believe that our multi-client investment provides a valuable future
revenue base. All of the seismic data in our multi-client data library is 3D or
multi-component geophysical information, and we have acquired approximately 90%
of the data in the last 30 months. Most of our seismic data is located in
deepwater areas in the Gulf of Mexico, West Africa, Brazil, Norway, West of
Shetlands, Egypt and Australia. In addition, we maintain a sizeable database in
the gas prone areas on the continental shelves in the Gulf of Mexico, the UK
sector of the North Sea, Norway, Indonesia and certain areas in the Middle East.
We believe our current data library is one of the largest and newest 3D seismic
databases available in the industry.
A substantial amount of our capital expenditures and investment in
multi-client library is discretionary. We have reduced such expenditures during
the first half of 2000 as compared to the
<PAGE> 6
same period of 1999, and we expect to continue this trend for the second half
of 2000. We currently do not have any major commitments for future capital
expenditures. However, we intend to pursue additional opportunities to provide
floating production, storage and offloading systems and advanced geophysical
services to our customers. We expect that any investment in floating production
assets will be subject to obtaining long-term contracts for those assets.
Capital Resources and Liquidity
We have historically financed our activities through cash flows from
operations, bank credit facilities, equity financing and the issuance of debt.
At June 30, 2000, we had $160.0 million in available committed
revolving credit facilities.
We expect to finance our future capital expenditures, multi-client
investments and working capital needs through a combination of operating cash
flows, sales of non-core assets, bank credit facilities, equity offerings and
debt financing. We cannot assure you that such sources of funds will be
available in the future or be available at costs acceptable to us. As a result,
in addition to analyzing operating market conditions and/or the award of
long-term contracts, we routinely analyze available sources of financing before
committing to significant capital expenditures.
We believe that cash on hand, operating cash flows and our available
bank credit facilities will be adequate to meet our current commitments for
capital expenditures, anticipated multi-client investments and working capital
requirements.
LEGAL PROCEEDINGS
We are the defendant in a lawsuit filed in the UK by a subsidiary of
DSND Sondenfjeldske ASA ("DSND"), a company that was engaged to perform certain
subsea services for the Banff Field development. In 1998, we terminated the
contract relating to the Banff development and have been invoiced by DSND for
certain costs related to the subsea and riser installation work on the Ramform
Banff, which we have disputed. In July 2000, the court awarded DSND 9.5 million
pounds sterling in the first claim of the case. The remaining claims outstanding
involve a claim by DSND for an additional 7.5 million pounds sterling and our
counterclaim against DSND for 10.4 million pounds sterling. We intend to
vigorously pursue our counterclaims and legal defenses in the second and third
phases, which are currently scheduled to be heard in November 2000 and April
2001, respectively. We do not expect the ultimate resolution of this litigation
to have a material adverse impact on our results of operations or financial
position.
<PAGE> 7
Petroleum Geo-Services ASA
Consolidated Income Statements (5)
<TABLE>
<CAPTION>
Quarter ended Six months ended Year ended
June 30, June 30, December 31,
--------------------------- --------------------------- ------------
(In thousands of dollars, 2000 1999 2000 1999 1999
except for share data) ----------- ---------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Revenue $ 236,389 $ 199,336 $ 449,119 $ 348,000 $ 788,160
----------- ---------- ----------- ---------- ----------
Cost of sales 104,743 78,687 207,455 141,428 333,060
Depreciation and amortization 68,046 64,632 129,686 107,342 238,576
Research and technology costs 2,614 5,400 5,271 11,069 15,859
Selling, general and administrative costs 18,928 17,230 37,508 34,997 71,738
Unusual items (1) - 7,000 - 67,989 89,855
----------- ---------- ----------- ---------- ----------
Total operating expenses 194,331 172,949 379,920 362,825 749,088
----------- ---------- ----------- ---------- ----------
Operating profit 42,058 26,387 69,199 (14,825) 39,072
Financial expense, net (4) (33,257) (21,235) (63,194) (40,884) (95,969)
Other income, net (2) 2,361 9,358 5,172 20,485 18,715
----------- ---------- ----------- ---------- ----------
Income (loss) before income taxes and
cumulative effect of accounting change 11,162 14,510 11,177 (35,224) (38,182)
Provision (benefit) for income taxes (3,114) 2,671 (9,758) (12,628) (41,890)
----------- ---------- ----------- ---------- ----------
Income (loss) before cumulative effect
of accounting change 14,276 11,839 20,935 (22,596) 3,708
Cumulative effect of accounting change, net (3) - - - (19,977) (19,977)
----------- ---------- ----------- ---------- ----------
NET INCOME (LOSS) $ 14,276 $ 11,839 $ 20,935 $ (42,573) $ (16,269)
=========== ========== =========== ========== ==========
Basic earnings (loss) per share before
cumulative effect of accounting change $ 0.14 $ 0.13 $ 0.21 $ (0.25) $ 0.04
Cumulative effect of accounting change, net(3) - - - (0.22) (0.21)
----------- ---------- ----------- ---------- ----------
Basic earnings (loss) per share $ 0.14 $ 0.13 $ 0.21 $ (0.47) $ (0.17)
=========== ========== =========== ========== ==========
Diluted earnings (loss) per share before
cumulative effect of accounting change $ 0.14 $ 0.13 $ 0.20 $ (0.25) $ 0.04
Cumulative effect of accounting change, net(3) - - - (0.22) (0.21)
----------- ---------- ----------- ---------- ----------
DILUTED EARNINGS (LOSS) PER SHARE (6) $ 0.14 $ 0.13 $ 0.20 $ (0.47) $ (0.17)
=========== ========== =========== ========== ==========
Basic shares outstanding 101,879,153 89,811,489 101,758,404 89,680,376 94,767,967
----------- ---------- ----------- ---------- ----------
Diluted shares outstanding 103,462,345 90,911,574 103,079,705 89,680,376 95,840,199
=========== ========== =========== ========== ==========
</TABLE>
NOTES:
(1) Unusual items for the year ended December 31, 1999 includes $74.0 million
(of which $52.1 million was incurred in the first quarter of 1999) in
employee termination costs, lease termination/revision costs, vessel
derigging costs and equipment impairments directly related to restructured
operations, as well as $15.9 million (of which $8.9 million and $7.0 million
were incurred in the first and second quarters of 1999, respectively) in
asset impairments caused by market conditions.
(2) Other income, net for 1999 includes $19.1 million (of which $9.4 million and
$9.7 million were received in the first quarter and second quarters of 1999,
respectively) in UK lease gains related to the Ramform Victory and the
Ramform Vanguard, which were delivered in January and April of 1999,
respectively.
(3) Effective January 1, 1999, the Company adopted Statement of Position (SOP)
98-5, "Reporting on the Costs of Start-up Activities." This SOP requires
that the initial, one-time costs related to introducing new products and
services, conducting business in new territories or commencing new
operations be expensed as incurred. Accordingly, the Company has recognized
a charge to income of $28.0 million ($20 million net of tax) as the
cumulative effect of the change in accounting principle.
(4) For information regarding $143.8 million liquidation amount of 9.625% trust
preferred securities issued by PGS Trust I, a statutory business trust
formed by the Company, see Note 9 to the Consolidated Financial Statements
contained in the Company's Annual Report on Form 20-F for the year ended
December 31, 1999. Financial expense, net for the second quarter and the six
months ended June 30, 2000 and the year ended December 31, 1999, includes
$3.7 million, $7.4 million, and $7.7 million, respectively, in minority
interest expense related to the trust's securities. The sole assets of the
trust are junior subordinated debentures of the Company that bear interest
at the rate of 9.625% per year and mature on June 30, 2039. As of June 30,
2000, the trust held $148.2 million principal amount of such debentures.
(5) Certain reclassifications have been made to conform prior year amounts with
the current year presentation.
(6) Earnings per share before unusual items and UK lease gains for the second
quarter of 1999 was $0.11.
<PAGE> 8
Petroleum Geo-Services ASA
Consolidated Balance Sheets (5)
<TABLE>
<CAPTION>
June 30, December 31,
(In thousands of dollars, except for share data) 2000 1999
----------- -----------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 49,119 $ 63,044
Accounts receivable, net 274,361 240,634
Other current assets 121,787 94,926
----------- -----------
Total current assets 445,267 398,604
Multi-client library, net 910,476 816,423
Property and equipment, net 2,382,470 2,429,848
Goodwill and other long-term assets, net 538,190 531,776
----------- -----------
TOTAL ASSETS $ 4,276,403 $ 4,176,651
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Short-term debt and current portion of long-term debt and
capital lease obligations $ 65,182 $ 22,409
Accounts payable and accrued expenses 198,550 232,277
Income taxes payable 9,857 9,805
----------- -----------
Total current liabilities 273,589 264,491
Long-term debt 2,074,870 1,986,143
Long-term capital lease obligations 8,545 12,387
Other long-term liabilities 103,839 104,737
Deferred income taxes 71,784 79,852
----------- -----------
Total liabilities 2,532,627 2,447,610
----------- -----------
Commitments and contingencies
Guaranteed preferred beneficial interest in PGS junior
subordinated debt securities (4) 139,623 139,164
Shareholders' equity:
Common stock, par value NOK 5; issued and outstanding
102,110,087 and 101,609,587 shares at June 30, 2000
and December 31, 1999, respectively 70,409 70,126
Additional paid-in capital 1,213,631 1,208,873
Retained earnings 348,320 327,385
Accumulated other comprehensive loss (28,207) (16,507)
----------- -----------
Total shareholders' equity 1,604,153 1,589,877
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 4,276,403 $ 4,176,651
=========== ===========
</TABLE>
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Petroleum Geo-Services ASA
Consolidated Statements of Cash Flows (5)
<TABLE>
<CAPTION>
Quarter ended Six months ended Year ended
June 30, June 30, December 31,
--------------------- ---------------------- -----------
(In thousands of dollars) 2000 1999 2000 1999 1999
-------- --------- --------- --------- -----------
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 14,276 $ 11,839 $ 20,935 $ (42,573) $ (16,269)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation and amortization charged to expense 68,046 64,632 129,686 107,342 238,576
Non-cash charges -- 7,000 -- 88,050 83,805
Provision for deferred income taxes (3,114) 2,671 (9,758) (20,773) (53,471)
Working capital changes and other items (98,447) (88,562) (103,983) (40,478) (51,963)
-------- --------- --------- --------- -----------
Net cash provided by operating activities (19,239) (2,420) 36,880 91,568 200,678
-------- --------- --------- --------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in multi-client library (61,531) (80,387) (133,426) (184,028) (338,718)
Capital expenditures (14,832) (109,222) (34,924) (243,716) (667,869)
Other items, including net proceeds from UK leases (4,137) 4,540 (6,872) 11,710 5,496
-------- --------- --------- --------- -----------
Net cash used in investing activities (80,500) (185,069) (175,222) (416,034) (1,001,091)
-------- --------- --------- --------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of long-term debt -- -- 223,845 -- 195,712
Net proceeds from issuance of guaranteed preferred beneficial
interest in PGS junior subordinated debt securities -- 138,914 -- 138,914 138,914
Net proceeds from issuance of common stock 3,485 3,488 5,040 3,736 220,024
Repayment of long-term debt (4,831) (6,107) (8,657) (13,126) (29,924)
Net increase (decrease) in revolving and short-term debt 95,996 33,982 (83,913) 188,187 283,334
Principal payments under capital lease obligations (1,871) (4,795) (3,675) (9,871) (13,437)
Lease financing of owned equipment -- 8,812 -- 8,812 15,512
Other items (8,068) -- (8,068) -- --
-------- --------- --------- --------- -----------
Net cash provided by financing activities 84,711 174,294 124,572 316,652 810,135
-------- --------- --------- --------- -----------
Effect of exchange rate changes in cash and cash equivalents (86) (22) (155) 34 49
Net increase (decrease) in cash and cash equivalents (15,114) (13,217) (13,925) (7,780) 9,771
Cash and cash equivalents at beginning of period 64,233 58,710 63,044 53,273 53,273
-------- --------- --------- --------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 49,119 $ 45,493 $ 49,119 $ 45,493 $ 63,044
======== ========= ========= ========= ===========
</TABLE>
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
PETROLEUM GEO-SERVICES ASA
----------------------------------------
(Registrant)
By: /s/ William E. Harlan
----------------------------------------
William E. Harlan
Vice President, Chief Accounting Officer
and Controller
Date: August 18, 2000
