Bloomberg News

CGGVeritas Surges After Saying Vessel Rates, Use May Improve

November 09, 2010

CGGVeritas (GA), the world’s largest seismic surveyor of oilfields, surged to a six-month high after saying prices for vessels have stabilized and their use will improve in the fourth quarter after a loss in the last period.

The shares rose as much as 8.2 percent, the most since May 20, and were trading 1.34 euros higher to 19.92 euros at 2:54 p.m. in Paris. They’ve advanced 33 percent this year.

Prices for hiring CGGVeritas vessels for seismic surveys “haven’t fallen more than a few months ago and haven’t improved. We are in a stability phase,” Executive Vice President Gerard Chambovet said on a conference call with analysts. An impact from any increase in prices won’t be felt “before the middle of 2011.”

“The fourth quarter should be better,” Christine Ropert, analyst at Gilbert Dupont, said by telephone. “The prospects for 2011 appear more reassuring.”

The seismic market has struggled as oil producers slashed spending last year because of the global recession, an oversupply of vessels and the Gulf of Mexico moratorium that has now been lifted on deepwater oil and gas drilling. CGGVeritas Chief Executive Officer Jean-Georges Malcor has said he doesn’t anticipate a price recovery until mid-2011 due to the vessel oversupply.

The number of marine streamers, which are equipment used in underwater surveys, rose to about 600 globally near the end of 2010 from 500 at the start of the year, CGGVeritas’ Chambovet said today.

Net Loss

The Paris-based company reported a third-quarter net loss of $33 million compared with a profit of $8 million last year. This was lower than the average estimate of close to breakeven from 11 analysts surveyed by Bloomberg. Sales fell 10 percent to $656 million while earnings before interest, taxes, depreciation and amortization fell 32 percent to $157 million, according to a statement today.

The company cited a “difficult” market for marine and North American land contracts and low vessel rates. The results “reflect the challenging conditions that prevail during the low phase of the cycle we are going through,” Malcor said in the statement.

CGGVeritas hopes to be in line with Bloomberg earnings estimates for 2010 ebitda of $775 million and sales of $2.9 billion, he said. Fourth-quarter operating income from services will be around the same level as the first quarter, he said.

The company will give an outlook for technology and costs on Dec. 16. Executives today provided a brief description of new technology being marketed to clients called BroadSeis they said offers improved images of hydrocarbon reservoirs.

Weak Cashflow

“With weak cashflow generation in the third quarter, the company sees a slight improvement in the fourth quarter but the full-year result will remain weak,” BofA Merrill Lynch analyst Fiona Maclean said in a note on the results, keeping a “neutral” rating on the stock.

CGGVeritas reported a group operating margin of 4 percent, compared with 8 percent a year earlier. The measure of profitability was 30 percent for its Sercel seismic equipment division due to higher land sales compared with 18 percent a year earlier. Prospects are “positive” looking ahead, executives said today.

The services business had an operating margin of negative 4 percent compared 7 percent a year earlier due to “challenging” market conditions both offshore and for onshore North America, according to the statement. The group ebitda margin fell to 24 percent from 32 percent a year earlier.

The company’s vessel availability and production rates stood at 87 percent “in the continued low price market,” according to the statement. This compares to a 92 percent level in the second quarter.

“The vessel utilization rate will improve in the fourth quarter,” Chambovet said on the call. This is in part due to the repositioning of vessels that were in the Gulf of Mexico.

The company is also expecting to sign a contract for two vessels for India and expects increased demand from Brazil.

The surveyor was created in 2006 when Massy, France-based Compagnie Generale de Geophysique SA bought Houston-based Veritas DGC Inc.

To contact the reporter on this story: Tara Patel in Paris at tpatel2@bloomberg.net

To contact the editor responsible for this story: Will Kennedy at wkennedy3@bloomberg.net.


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