European Oil Services & Drilling

8/13/2019 European Oil Services & Drilling

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Equity Resear

17 January 20

Barclays Capital Inc. and/or one of its affiliates does and seeks to do business with companiescovered in its research reports. As a result, investors should be aware that the firm may have aconflict of interest that could affect the objectivity of this report.

Investors should consider this report as only a single factor in making their investment decision.

This research report has been prepared in whole or in part by equity research analysts based outsidethe US who are not registered/qualified as research analysts with FINRA.

PLEASE SEE ANALYST CERTIFICATION(S) AND IMPORTANT DISCLOSURES BEGINNING ON PAGE 35.

European Oil Services & Drilling

Seismic: down, but not out

Over the past few weeks all of the seismic companies under our coverage have

announced an update, ranging from utilisation figures to a full corporate

restructuring vision. What is clear to us from all of these is that the upwards

progression of marine contract pricing has stalled and investors, we believe, are

expecting a much flatter environment. It is also clear, however, that the industry has

not lost control. Yes, more multi-client activity will enter the mix in low utilisation

periods, but aggressive pre-funding levels have not materialised, and capacity is

being removed where possible. Hence, while a flat outlook appears a sensible

planning assumption in an insipid demand growth environment, what that will look

like in a years time, in our view, is more likely to surprise on the upside than the

downside. As a result, we believe the seismic industry is down, but not out. With the

pure vessel plays PGS and Polarcus trading on 6-8x 2014F PE, we believe that thepoor market is largely factored into valuations. It may take indications of a better

late northern hemisphere summer season to catalyse share price performance, but

with all companies showing strong earnings growth, despite a tepid current

environment, we remain comfortable with recommending seismic stocks. Our

preferred play is PGS, whose unique vessels appear to us to offer an advantage and

whose dividend yield could soon remind investors of its capital discipline. Our least

preferred plays are CGG, which despite another restructuring programme is still

expecting only to generate below average industry margins, and TGS, which after

recent moves is fully factoring in its investment programme, in our opinion.

Downgrade Polarcus to Equal Weight: Polarcus has continued to do the right things

and we see it as undervalued. However, with a weak current market, we see covenantsas tight again and see our earnings out by 26% for the 2014F period. As a result, we

downgrade to Equal weight and cut our price target to NOK6.20 from NOK7.00.

Flatter outlook: We have moved our contract pricing assumptions to a flatter outlook.

Given operational gearing in the service model, this results in an average cut in our

earnings estimates for the contract players of 22% in 2014F and 16% in 2015F.

PGS remains our preferred play: With a good level of visibility on 2014F capacity, a

high-margin fleet, and a balance sheet that we believe can continue to support

shareholder returns, PGS is our top pick in the space.

INDUSTRY UPDATE

European Oil Services & DrillingPOSITIVE

Unchanged

For a full list of our ratings, price target andearnings changes in this report, please seetable on page 2.


Mick Pickup

+44 (0)20 3134 6695

[email protected]

Barclays, London

Haley Silverman

+44 (0)20 7773 4457

[email protected]

Barclays, London


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Barclays | European Oil Services & Drilling

17 January 2014

2

Summary of our Ratings, Price Targets and Earnings Changes in this Report (all changes are shown in bold)

Company Rating Price Price Target EPS FY1 (E) EPS FY2 (E)

Old New 15-Jan-14 Old New %Chg Old New %Chg Old New %Chg

European Oil Services & Drilling Pos Pos

CGG (CGG FP / GEPH.PA) UW UW 12.53 19.00 15.00 -21 0.98 0.77 -21 1.74 1.24 -29

Petroleum Geo-Services (PGS NO / PGS.OL) OW OW 73.40 100.00 93.00 -7 1.24 1.09 -12 1.64 1.47 -10

Polarcus (PLCS NO / PLCS.OL) OW EW 4.55 7.00 6.20 -11 0.08 0.07 -12 0.16 0.12 -25

TGS (TGS NO / TGS.OL) UW UW 174.00 190.00 180.00 -5 2.38 2.53 6 2.62 2.58 -2

Source: Barclays Research. Share prices and target prices are shown in the primary listing currency and EPS estimates are shown in the reporting currency.

FY1(E): Current fiscal year estimates by Barclays Research. FY2(E): Next fiscal year estimates by Barclays Research.

Stock Rating: OW: Overweight; EW: Equal Weight; UW: Underweight; RS: Rating Suspended

Industry View: Pos: Positive; Neu: Neutral; Neg: Negative
http://my.barcapint.com/BC/composite/GER_COMPANY?ticker=GEPH.PAhttp://my.barcapint.com/BC/composite/GER_COMPANY?ticker=PGS.OLhttp://my.barcapint.com/BC/composite/GER_COMPANY?ticker=PLCS.OLhttp://my.barcapint.com/BC/composite/GER_COMPANY?ticker=TGS.OLhttp://my.barcapint.com/BC/composite/GER_COMPANY?ticker=TGS.OLhttp://my.barcapint.com/BC/composite/GER_COMPANY?ticker=PLCS.OLhttp://my.barcapint.com/BC/composite/GER_COMPANY?ticker=PGS.OLhttp://my.barcapint.com/BC/composite/GER_COMPANY?ticker=GEPH.PA


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CONTENTS

Market is not what it was ......................................................................................................................... 4

CGG (UW, PT EUR15 from EUR19) ....................................................................................................... 12

PGS (OW, PT NOK 93 from NOK100) .................................................................................................. 16

Polarcus (EW, NOK 6.20 from NOK7) .................................................................................................. 21

TGS (UW, NOK 180, from NOK 190) .................................................................................................... 26


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Market is not what it was

Post summer 2013 the indications coming out of the seismic market have become more

tepid as some eagerly awaited large contracts got held up and winter demand, as has often

happened in the past, began to wane. In addition, the oil industry is on what we view as a

renewed health drive. Excess spending is being evaluated and, as has been the case in the

past, the seismic industry is again in the firing line.

As ever with the seismic industry all is not clear-cut. We see the signals as mixed. Demand

for 4Q13 was not as high as expected and 1Q14 appears to be shaping up similarly. This is

not an uncommon winter issue. On the positive side, however, some of six major new tenders

in the market that were delayed have been awarded and are starting to absorb supply and

those contracts that have been signed for 2Q14 and beyond are at improved rates. This is

ahead of the summer season which typically squeezes rates. On the negative side, using PGS

market that were delayed have been awarded and are starting to absorb supply and those

contracts that/y. This chart, however, can be volatile and has fallen, we believe, in the short

term as some of the major awards have been signed. In addition, the absolute level is still

above that at the end of 2011. Therein lies the contradiction. Yes, the market is not what was

once expected. But it is not, in our view, disastrous. US$ demand is still at levels only exceeded

in the 2007-09 period and that is largely due to pricing being some 50-100% higher than

current levels. In terms of vessel demand, the current market is at or near all-time high levels.

Six large sales leads convert into active tenders

0

500

1,000

1,500

2,000

2,500

3,000

3,500

Apr-04

Aug-04

Dec-04

Apr-05

Aug-05

Dec-05

Apr-06

Aug-06

Dec-06

Apr-07

Aug-07

Dec-07

Apr-08

Aug-08

Dec-08

Apr-09

Aug-09

Dec-09

Apr-10

Aug-10

Dec-10

Apr-11

Aug-11

Dec-11

Apr-12

Aug-12

Dec-12

Apr-13

Aug-13

USDmillions

Active tenders All sales leads (inc active tenders)

Source: PGS company data, Barclays Research

The above talk about current demand is purely short-term. Longer-term we see the shift of

seismic into the production arena and the ever-increasing need for higher resolution as

sustaining activity and the need to unlock new basins to drive down unit development costs.

We expect multiple new basins to open up over the coming years, highlighted in the below

chart. This positive trend is currently, we believe, being swamped by small delays that can

significantly impact quarterly numbers. These are very likely to be a continued feature for

the industry, but we believe the general trend is in the right direction.

Mixed signals

Longer-term thesis more in

balance


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New basins drive future growth

Source: Company data, Barclays Research

Importantly, in what we see as a constructive medium-term demand outlook, we see vessel

new building activity as rational. In previous cycles, when pricing was improving, we saw

15-35% capacity additions per annum. However, in 2013, there were only two larger 3D

vessels entering the fleet, net of two CGG retirements. This leads to what we believe to be

about 3% net new capacity globally. In 2014, we expect an improved picture, with four new

vessels being offset by three retirements. A net increase of one vessel is the lowest increase

that we have recorded. Furthermore, while we expect four net additions by 2015, indications

from CGG that it will remove 25% of its capacity by 2016 and PGS removing one vessel at theend of 2015, mean that by 2016 we expect to see a similar size fleet to 2013/14.

World marine seismic fleet

0

10

20

30

40

50

60

70

1996 1998 2000 2002 2004 2006 2008 2010 2012 2014E 2016E

CGGVeritas WGeco PGS Fugro Polarcus BGP Dolphin Other Total


SouthAmerica:Uruguay,Falklands,

Brazil,Suriname, &

Guyana

North America: NovaScotia

Central America:Caribbean Mediterranean: Eastern

Med & Black Sea

East Africa:Mozambique, Tanzania,

Kenya

West Africa: Namibia,Angola, Gabon and S

Africa

Europe: Barents sea

Russian Arctic: Rosneft & Gazprom new acreage

Australasia: Myanmar,Australia , Chinese sea

Moderate capacity increases

mark this cycle as different

from previous ones


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The above positive supply-side picture could however be misleading. Firstly, the streamer

count is increasing at a faster pace than the vessel count. In 2014, while we see a flat vessel

count, we also see a 5% increase in the number of streamers. Secondly, we now believe that

this streamer count is no longer a reliable proxy for supply from which we can estimate

demand, given utilisation data. This has been highlighted by PGS in its recent presentations,

ostensibly in showing the benefits it is receiving from using its Ramform vessels.

As a rule of thumb, we would suggest that 10,000km

2

requires ca 10 months of vessel time.PGS argues this is the case for a 6-streamer vessel. However, as vessels increase in size the

amount of time per survey falls rapidly, such that by the time vessels are the size of its

newer Ramform vessels, they require only 102 days. In addition, its Geostreamer adds

efficiencies which it believes put it ahead of equivalent vessels in the market.

Time efficiency per 10k km2survey of Ramform Titan class vessels

0

50

100

150

200

250

300

350

6 8 10 12 14 16 18

Days

Streamer count


As a result of increased efficiency, since the average streamer count of the industry has grown

from 8.2 per vessel in 2006 to 11.2 in 2013, we have seen ca30% effective capacity creep.

Streamer per vessel over time

0

2

4

6

8

10

12

14

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017


In an attempt to show this effect visually we have applied a scale factor to our vessel/streamer

count analysis. Assuming a purely arbitrary effective efficiency of 1 for a 6-streamer vessel,

increasing to 2 for 18 streamer +, we see that 2013 actually experienced an 8% effective

streamer capacity increase versus the 3% vessel capacity addition and 6.5% streamer additions.

Effective capacity grows faster


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Effective streamer count vs the actual streamer count Effective vessel count vs the actual vessel count

0

200

400

600

800

1,000

1,200

1,400

Streamers Effective streamers

0

20

40

60

80

100

120

Vessels Effective vessels

Source: Company data, Barclays Research Source: Company data, Barclays Research

Looking forward, beyond 2014, the effect continues. Over the 2014-16 period we see only

one net vessel added, we see the streamer count and effective streamer count increasing by

ca10%. Given that we expect capex to continue to increase in the high single-digit region

for the medium term, this would imply that the market should increase at a similar rate to

the supply side. It does not suggest to us that the market is going to tighten significantly,

nor does it suggest it is going to weaken. We have therefore based our medium-term

numbers off a flat outlook for unit pricing.

Multi-client on the up, but is the quality there?

All of the above analysis is based on the contract market. We should bear in mind that the

multi-client market has been absorbing ca28% of capacity. Multi-client surveys have

historically been a key component of seismic companies ability to mitigate the cyclical

volatility in their business. As long as it is executed within sound financial rationale, then

multi client can provide a more stable earnings stream. In this respect, many companies

have talked of a long-run 30-40% allocation to multi-client as the ideal and indeed Polarcus

has just had its covenants revised to allow it to extend its activities. This could further aid

the perceived imbalance in the market at present. We would not see this as a desperate

measure to balance supply and demand of equipment as we believe many investors see it

and with good measure given behaviour at the turn of the last decade but rather a

mechanism to generate more consistent returns and to provide a base of cash flow should

we see a downturn in the market. It could, however, take some time of consistent multi-

client results before investors start to believe in it as a credible business model. Indeed, at

the moment, we see the companies as trapped. Excess multi-client work in a utilisation

update is likely to be seen as negative, as a cry for help on the utilisation front. Then several

quarters later if late sales come in, the results are typically seen as a low-quality beat.


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European seismic industry multi-client allocation (includes CGG, PGS and Polarcus)

0%

5%

10%

15%

20%

25%

30%

35%

40%

1Q07

2Q07

3Q07

4Q07

1Q08

2Q08

3Q08

4Q08

1Q09

2Q09

3Q09

4Q09

1Q10

2Q10

3Q10

4Q10

1Q11

2Q11

3Q11

4Q11

1Q12

2Q12

3Q12

4Q12

1Q13

2Q13

3Q13

4Q13


Two other factors are also at play. First, multi-client appears not only to be used as a

utilisation filler, but its use also appears to us to be being driven by the oil companies.

Sensing the appetite for multi-client from in both the newly awarded areas of Brazil and in

Norway in the Barents Sea, several operators have grouped together to put out a larger

tender (see Seismic cooperation in the southeastern Barents Sea (Statoil website)). This by

default becomes a more meaningful contract and desire for it should increase. In our view,

under the guise of geological understanding and fishery protection, it is an attempt to

reduce pricing, by converting what would once have been contract into a multi-client in

which the pricing is determined by a pre-funding reverse auction. It presumably also means

that the pre-funding is what the pre-funding is. There would appear to us little chance of

getting new entrants at a later date before finalisation of the survey. It could also limit the

after-sales potential.

A second effect, and more positive, is that for CGG multi-client is a mechanism whereby it

can utilise the skills it acquired when it bought the Geological and geophysical business ofFugro. With this acquisition, the company has greatly enhanced its sub-surface

understanding. As a result, it should be in a better place to determine what seismic to do,

thereby de-risking its activities.

The above is only one aspect of the multi-client model. The other is that the profitability of it

can be variable, especially on a quarterly basis. However, over time it tends to give a more

stable return. Indeed, 2Q13 was the fourth highest ever quarter for late sales, on our

estimates, and sixth highest for overall multi-client sales, despite lower-than-expected pre-

funding levels. Furthermore, TGS has just announced that 4Q13 will be its record late sales

quarter. This signals to us that the multi-client model is very much alive and kicking.
http://www.statoil.com/en/NewsAndMedia/News/2013/Pages/10Dec_Barents_seismic.aspxhttp://www.statoil.com/en/NewsAndMedia/News/2013/Pages/10Dec_Barents_seismic.aspx


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European seismic sector multi-client revenues

0

200

400

600

800

1Q03 1Q04 1Q05 1Q06 1Q07 1Q08 1Q09 1Q10 1Q11 1Q12 1Q13

US$mn

CGG Marine multi-client pre-funding CGG Marine multi-client late sales

Polarcus Multi-client pre-funding sales Polarcus Multi-client late sales

PGS Marine Multi-client pre-funding PGS Marine Multi-client late sales

TGS Net pre-funding TGS Net late sales

Source: Company data (all prefunding/late sales definitions are as per company-specific definitions, hence cross

comparisons are difficult to make)

A price for everythingThe market outlook has deteriorated for seismic as we have moved through 2013 and our

expectations for 2014s momentum have waned. That said the seismic stocks have fallen by

an average of 24% since the beginning of 2013 (range: 2-44%) versus an average of 4% for

the rest of our coverage universe. Largely as consensus estimates have fallen eg CGG

2013F and 2014F EPS estimates have fallen by over 60% since the beginning of 2013.

Change in consensus EPS estimates and share price

Change in 2013

consensus EPS

Change in 2014

consensus epsChange in share price

CGG (65)% (62)% (45)%

PGS (22)% (30)% (23)%

Polarcus (66)% (58)% (31)%

TGS (12)% (20)% (4)%

Average (41)% (42)% (26)%

Source: Datastream, since 1/1/13 to present day

In the main the stocks have moved down similar to their earnings cuts, implying that the

multiple has only changed slightly. There has been little re-rating as earnings have been cut,

implying investors believe the longer-term picture has changed. However, pricing has not

collapsed and with the stocks trading at a ca 30% discount to their long-run multiples, we

see this as inappropriate.


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Historical 12-month forward PE vs 10-year average

0x

5x

10x

15x

20x

25x

30x

35x

2004 2006 2008 2010 2012 2014

12MForward PE

CGG CGG Avg

0x

5x

10x

15x

20x

25x

30x

2004 2006 2008 2010 2012 2014

12MForward PE

PGS PGS Avg

0x

5x

10x

15x

20x

25x

2004 2006 2008 2010 2012 2014

12MForward PE

TGS TGS Avg

0x

2x

4x

6x

8x

10x

2012 2013 2014

12MForward PE

Polarcus Polarcus Avg

Source: Datastream, Barclays Research

Polarcus PE is a 2-year history against a 2-year average.

While multiples are a good guide, we have always viewed them as a distraction within a

highly cyclical business, as they are unlikely to reflect the value of a business on an ongoing

basis. Our preferred evaluation metric has long been DCF-based and while we concede that

a range of answers can be forthcoming, we view it as the only way to view the types of

assumptions that the stocks are factoring in.

Our base case DCF, which we use across the Oil Service space, uses a 10% discount rate.

For vessel owners in the seismic space we add a further 100bp to reflect the more cyclical

nature of earnings and for Polarcus we add a further 200bp to reflect its high gearing and

stressed balance sheet. Only for TGS, which has no assets apart from its produce, do we use

the base case 10%.

In our DCF-based evaluation we use our discrete forecasts until 2015, then apply 10% per

annum growth for the 2016-17F period. We then reduce the business at a similar rate until

2019F, at which point we use a (WACC-growth) approach to determine a terminal value

using a standard 3% terminal growth rate. We note that this compares to oil industry capex

that has grown at over 7% per annum for the past 40 years and is expected to grow by

6.1% in 2014, according to Barclayss Global 2014 E&P Spending Survey.
https://live.barcap.com/go/publications/content?contentPubID=FC1991033https://live.barcap.com/go/publications/content?contentPubID=FC1991033


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DCF-based evaluations

% Discount rateDCF base case

(Target price)DCF upside DCF downside

CGG, EUR 11% 15 20% 33 163% 11 (12)%

PGS, NOK 11% 93 27% 150 104% 60 (18)%

Polarcus, NOK 13% 6.2 36% 16 252% 2 (56)%

TGS, NOK 10% 180 3% 260 49% 110 (37)%

Source: Barclays Research

The key for us is the downside potential which, ex TGS, we see as limited. For our downside

cases we assume a 5% decline in pricing in 2014F and 2015F and a reduction in margin

thereafter the same as the price reduction reduces our 2015F. For the pure vessel owners,

this leaves downside potential of ca 20%, versus significant upside. In effect, we see current

share prices as factoring in declining prices over the 2014-15F period, contrary to our

expectations. Indeed, in this scenario pricing in 2015 would be at levels equivalent to the

troughs of 2010.

For TGS, we still see significant downside potential, but that is dependent on two factors

the level of investment going forward and the pre-funding. Our base case is predicated on

US$420-475mn of investment for the 2014-15F period and future investments based onthis level. It also expects a return to the 50% pre-funding level from the low 40% range

expected in 2013F, due to delays and competition.

As a result of this analysis, our preferred play remain PGS. At 7x 2014F PE and with 42%

upside potential, we see PGS as harshly treated in 2013F versus its actual performance.

For Polarcus, we see the upside potential as significant. However, with high gearing (both

operational and financial), negative moves in the market can significantly affect earnings, and

subsequently balance sheet strength. In this respect, 26% idle time in 4Q13 on top of a

weakening pricing environment have caused us to reduce our 2013F earnings estimates by

12%. In addition, the lack of any meaningful multi-client sales thus far leads us to cut our

expectations of multi-clients sales for 2014F, negatively impacting our EPS estimate by 20%.

This is turn brings the covenants threshold back into focus in the beginning of 2014F T a

situation we feel investors will focus on. As such, our reduced DCF-based price target is now

NOK6.2/share. While we admit this still leaves 38% potential upside, the worry for us around

sustained negative momentum in the market, and the sensitivity of earnings, leads us to

downgrade to Equal Weight.


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CGG (UW, PT EUR15 from EUR19)

Another New Vision

CGG gave perhaps the most radical vision for the future as it outlined how it was likely to

look in 2016 after a restructuring exercise. Following the acquisition of Fugro's vessels, a

move we view as the principal cause of the marine contract market dislocation in 2013, its

focus is to become more of a solutions provider. As such, the marine fleet will be

rationalised by as much as 25%, with less profitable units removed. Equipment sales and

hence profits will grow and Geology, Geophysics & Reservoir division (GGR) will become

central delivering not only its own growth, but being at the heart of an enhanced multi-

client offering. However, as ever the earnings potential of the business is dominated by the

marine fleet and by reducing capacity you reduce the earnings. The margin increase needed

to get the business to high single-digit EBIT margin is still some way off where we would

expect that division to be. Using the new company proforma vision we cut our earnings

estimates by as much as 29% in 2014F and 22% in 2015F. As such we reduce our price

target significantly to EUR15/share. With limited upside potential, we remain Underweight.

Pro-forma is hardly exciting:The company has not given guidance for 2016, it has given a

pro-forma outlook under current pricing conditions. This scenario largely ties in with our

assumptions. As a result we cut our 2015 earnings forecasts by over 25%. Essentially, in 2016,

CGG expects to earn US$600mn of EBIT, 10% less than what we were expecting in 2014.

Not all the plans are in place:While the company has indicated its pro forma vision there

are still uncertainties. Capacity in the marine fleet will be reduced by up to 25% but there is

no indication of whether this is vessels or streamers or the timing. Furthermore, the

presentation talks of a new extended ARGAS (the company's Saudi land joint venture) with

no details of the shape or extent of the structure.

Equipment holding up:Earlier in 2013 there had been some concerns that the company's

Equipment division had peaked. It appears as if the company's view is one of growth as the

new 508XT land system is taken up by some of the mega-crews that it sees being awarded

in the Middle East. EBIT margins should stay above 28% and with reductions in the marinefleet, the Equipment contribution to group sales should grow back above 28%.

GGR at the heart of the business: The acquisition of Fugro's Geology & Geophysical

division was a change of direction for the company in 2013. By rolling multi-client into it the

company has created a business that goes from the consulting level to the library. The

thesis is that the acquired skills will create a much enhanced multi-client offering. However,

spending will likely be less than we had expected and, hence, as with TGS, returns thereafter

will likely be lower. In addition, pre-funding of 70%, late sales, and investment expectations

are in line with our current assumptions, which is a slightly disappointing outlook to us,

given the enhanced offering.

Earnings estimates cut by 22-29% in 2014-2015F: As a result of flat pricing and lower

capacity we are reducing our 2014-2015F EPS estimates by 22-29%, and thus our DCF-based price target to EUR15/share from EUR19/share previously. We remain Underweight.


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CGG Veritas - Income statement

US$ mn 2011A 2012A 2013F 2014F 2015F 2016F

Acquisition 2,218 1,970 1,924 1,704

GGR 1,307 1,350 1,450 1,540

Equipment 1,087 1,150 1,270 1,300

Eliminations (793) (670) (624) (506)

Net operating revenues 3,184 3,414 3,820 3,800 4,020 4,038

Cost of operations (2,647) (2,685) (3,021) (2,910) (3,025) (2,961)

Gross profit 537 729 800 890 995 1,077

Gross profit margin 17% 21% 21% 23% 25% 27%

R&D (77) (93) (113) (92) (102) (104)

SG&A (287) (280) (326) (266) (261) (262)

Other/Goodwill reduction 34 (27) 49 (60) (60) (60)

(Loss)/income from ops 208 329 410 472 572 650

Financial expenses, net (174) (176) (202) (180) (170) (170)

Exchange gains (losses), net 0 0 0 0 0 0

Income before tax 34 153 208 292 402 480

Income taxes (63) (99) (81) (99) (137) (163)

Tax rate, % 187% 65% 39% 34% 34% 34%

Minority Interest (14) (17) (5) 0 (1) (1)

Equity income 16 37 15 28 34 34

Goodwill 0 0 0 0 0 0

Adjusted net income (27) 74 137 221 298 350

Shares issued, ave.,undiluted, mn 151.8 162.1 176.9 176.9 176.9 176.9

Shares issued, ave.,diluted, mn 165.5 163.4 202.4 178.2 178.2 178.2

EPS, Basic (0.18) 0.46 0.78 1.25 1.69 1.98

EPS, Diluted (0.18) 0.45 0.77 1.24 1.67 1.96

Growth, y.o.y. n/a n/a n/a 61% 35% 17%

Gross margin 17% 21% 21% 23% 25% 27%

EBITDA 836 1018 1225 1219 1298 1331

EBITDA margin 26% 30% 32% 32% 32% 33%

Operating margin 7% 10% 11% 12% 14% 16%

Pre-tax margin 1% 4% 5% 8% 10% 12%

Net margin (1)% 2% 4% 6% 7% 9%

Tax rate, % 187% 65% 39% 34% 34% 34%


Income analysis:


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17 January 2014

14

CGG Veritas - Cash flow

US$ mn 2011A 2012A 2013F 2014F 2015F 2016F

Adjusted net income (27) 74 137 221 298 350

Minorities 14 17 5 0 1 1

Adjusted depreciation 629 655 800 719 692 647

Change in working capital 117 61 (260) 3 (37) (3)

Other items (69) (12) 238 34 36 38

Cash flow from operations 663 796 921 977 990 1,033per share 4.4 4.9 5.2 5.5 5.6 5.8

Capital expenditure (366) (369) (325) (375) (250) (250)

Investment in multi-client (203) (364) (479) (400) (400) (400)

Net cash flow from operations 94 63 116 202 340 383

Acquisitions (11) (53) (1,177) 0 0 0

Divestments 21 6 5 0 0 0

Proceeds from share issues 3 515 1 0 0 0

all other items 9 45 222 0 0 0

Surplus/Deficit 117 576 (832) 202 340 383


Non recurring items:

CGG Veritas - Balance sheet

US$ mn 2011A 2012A 2013F 2014F 2015F 2016F

Cash 531 1,520 320 320 320 320

Other current assets 1,578 1,953 1,954 1,944 2,055 2,064

Current liabilities (1,089) (1,170) (1,260) (1,254) (1,327) (1,333)

Net fixed assets 1,183 1,160 1,765 1,863 1,876 1,934

Intangibles 3,553 3,350 4,357 4,315 4,260 4,205

Other non current assets 343 350 350 350 350 350

Long term creditors (267) (266) (207) (148) (148) (148)

Capital employed 5,832 6,897 7,278 7,390 7,385 7,391

Ordinary shareholders funds 3,803 4,493 4,632 4,853 5,151 5,501

Minority interests 87 99 104 104 105 106

Short term debt 71 52 52 52 52 52

Long term debt 1,872 2,253 2,491 2,381 2,077 1,732

Capital employed from debt 5,832 6,897 7,278 7,390 7,385 7,391

NBV per share 25.1 27.7 26.2 27.4 29.1 31.1

Net debt 1411 785 2,222 2,113 1,809 1,464

Net debt per share 9.3 4.8 12.6 11.9 10.2 8.3

RoE, % (0.7) 1.8 3.0 4.7 6.0 6.6Net debt to equity, % 36.3 17.1 46.9 42.6 34.4 26.1

Net debt to debt plus equity, % 24.2 11.4 30.5 28.6 24.5 19.8

Return on gross capital employed, % 1.8 3.3 3.9 4.7 5.6 6.3



15/44


17 January 2014

15

European Oil Services & Drilling Industry View: POSITIVE

CGG (GEPH.PA) Stock Rating: UNDERWEIGHT

Income statement ($mn) 2012A 2013E 2014E 2015E CAGR Price (15-Jan-2014) EUR 12.53

Price Target EUR 15.00

Why Underweight?Seismic pricing in the short termappears to be under pressure. However, the medium-

term outlook appears to be more robust, supportingstable to increasing prices. However, despite thisoutlook, we see CGG as less attractive than its otherseismic peers given its multiple premium and hencerate the stock Underweight.

Upside case EUR 32.97

We assume that marine contract seismic pricingimproves at 15% points better than our estimates in2014 and 2015, towards peak levels seen in 2008. Inaddition, we factor in 5% per annum faster growth inthe equipment sector.

Downside case EUR 11.00

We assume that marine contract seismic pricing falls

at 10% points worse than our estimates in 2014 and15% in 2015, towards trough levels seen in 2010. Inaddition, we factor in 5% per annum further fall in theequipment sector.

Upside/Downside scenarios

POINT Quantitative Equity Scores

Source: POINT. The scores are valid as of the date of thisreport and are independent of the fundamental analysts'views. To view the latest scores, please go to the equitycompany page onBarclays Live.

Revenue 3,414 3,820 3,800 4,020 5.6%

EBITDA 1,018 1,225 1,219 1,298 8.4%

EBIT 329 410 472 572 20.2%

Pre-tax income 153 208 292 402 38.1%Net income (adj) 74 137 221 298 59.0%

EPS (adj) ($) 0.45 0.77 1.24 1.67 54.5%

Diluted shares (mn) 163.4 202.4 178.2 178.2 2.9%

DPS N/A N/A N/A N/A N/A

Margin and return data Average

EBITDA margin (%) 29.8 32.1 32.1 32.3 31.6

EBIT margin (%) 9.6 10.7 12.4 14.2 11.8

Pre-tax margin (%) 4.5 5.5 7.7 10.0 6.9

Net (adj) margin (%) 2.2 3.6 5.8 7.4 4.8

ROA (%) 1.0 1.6 2.5 3.4 2.1

ROE (%) 1.8 3.0 4.7 6.0 3.9

ROACE (%) 3.3 3.9 4.7 5.6 4.4

Balance sheet and cash flow ($mn) CAGR

Intangible fixed assets 3,350 4,357 4,315 4,260 8.3%

Cash and equivalents 1,520 320 320 320 -40.5%

Total assets 8,333 8,746 8,792 8,860 2.1%

Short and long-term debt 2,305 2,543 2,433 2,129 -2.6%

Other long-term liabilities 266 207 148 148 -17.7%

Total liabilities 3,741 4,010 3,835 3,604 -1.2%

Shareholders' equity 4,493 4,632 4,853 5,151 4.7%

Minorities 99 104 104 105 2.0%

Net debt/(funds) 785 2,222 2,113 1,809 32.1%

Capital employed 5,377 6,958 7,070 7,065 9.5%

Change in working capital 61 -260 3 -37 N/A

Cash flow from operations 796 921 977 990 7.5%

Capital expenditure -733 -804 -775 -650 N/ADividends paid N/A 0 0 0 N/A

Net cash from operations 63 116 202 340 75.3%

Free cash flow 63 116 202 340 75.3%

Net cash surplus/(deficit) 576 -832 202 340 -16.1%

Valuation and leverage metrics Average

P/E (adj) (x) 37.7 22.2 13.8 10.2 21.0

EV/EBITDA (x) 3.8 4.4 4.3 3.8 4.1

Equity FCF yield (%) 2.3 3.8 6.7 11.2 6.0

P/BV (x) 0.6 0.7 0.6 0.6 0.6

P/Sales (x) 0.9 0.8 0.8 0.8 0.8

Dividend yield (%) N/A N/A N/A N/A N/A

Net debt/capital (%) 14.6 31.9 29.9 25.6 25.5

Total debt/capital (%) 42.9 36.5 34.4 30.1 36.0Net debt/equity (%) 17.1 46.9 42.6 34.4 35.3

Selected operating metrics

Backlog ($mn) 1,240 N/A N/A N/A

Order intake N/A N/A N/A N/A

Source: Company data, Barclays ResearchNote: FY End Dec

Value

Quality

Sentiment

Low High
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16/44


17 January 2014

16

PGS (OW, PT NOK 93 from NOK100)

Our preferred seismic player

While PGS's 2014 guidance was a touch behind our expectations, it was so only because of

lower pricing expectations, the company now basing its assumptions on a slight decline for

its remaining capacity. That said, some 60% of 2014 is now booked, highlighting once

again to us that PGS has an offering that is valued. With its unique vessels, efficiency benefit

and physical broadband solution we see PGS as the least likely to suffer from capacity

utilisation issues. While this does not insulate it from the vagaries of pricing movements, it

does suggest to us that it is least likely to get caught in the demand droughts that happen

periodically. As such, with sector-leading margins, PGS remains our preferred play. With

27% upside potential to our reduced NOK93/share price target, we remain Overweight.

The right fleet: As we described earlier, the efficiency of the world fleet is improving,

rendering the counting of vessels, or indeed streamers, a virtually meaningless task. PGS is

at the forefront of this, building four new Ramform vessels (two still under construction). It

is also removing older capacity. As such the company sits at the high end of the efficiency

scale (as shown below). At todays costs and at todays pricing level (even though we feel

this is potentially too punitive) we find the retirements of low-margin vessels and the

additions of the new Ramforms could add 9% to average EBITDA margins per vessel per

month. This, of course, assumes PGS is able to book out all its capacity at current pricing

levels, which will surely fluctuate over time, but gives us an idea of the value-added capacity

additions the company is delivering.

PGS fleet averages better margins than industry peers

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0PGS vessels Potential Retirements

Scheduled Additions Current Average Pricing Level

Current Average PGS cost Future average PGS cost

Source: PGS company data, Barclays Research

Multi-client compares well:We believe PGS has a straightforward approach to multi-client.

Both its team and the contract team compete for capacity based on returns. As a result wehave seen revenues stabilising and pre-funding levels, although not comparable with those

of some of its peers due to definitional differences, have remained robust in the 80-120%

range. 2013 pre-funding is expected to be ca 95% and should rise to nearer 100% in 2014.

While the fall below 100% in 2013 could be seen as a cause for concern, it is in the face of

high multi-client in 4Q13, which took multi-client utilisation to over 50% for the year. This is

some way ahead of a more normal 40% that we expect in 2014.

More cash returns:Capex has been high over recent years with 2013, for example, likely to

be in the US$450-475mn range and 2014 will be US$400-450mn, on our forecasts. This is

largely due to the new-build programme, underlying maintenance capex being just


17/44


17 January 2014

17

US$180mn. Post 2015 capex should therefore fall sharply, at which point on relatively flat

assumptions, free cash jumps to US$405mn, as the new builds start to contribute. This is a

potential 20%. In the meantime we see the potential for enhanced returns. In 2012, the

company instigated a dividend distributing 25-50% of earnings. 2013 was at the lower end

at 30%, but the company has indicated that enhanced payments could be discussed with

the full-year results. In our numbers, we have moved to the upper end of the range, in

absolute terms US$0.50, representing 4% yield.

Earnings cut by 11-21% in 2014-2015F: While we are still positive on the companys

ability to navigate a flat market in 2014 and we feel the market has more than priced in a

negative scenario, we conservatively reduce our EPS estimates for 2014-2015F by 11% and

21% respectively. Our reduced DCF-based price target is now NOK93/share from

NOK100/share previously, implying 27% upside. Thus we remain Overweight.


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17 January 2014

18

PGS - Income statement

USD, '000 2011A 2012A 2013F 2014F 2015F 2016

Marine Contract Seismic 627,015 623,520 725,368 963,215 1,236,495 1,401,91

Marine Multi-client Sales 501,807 728,180 636,073 648,683 664,901 717,141

Marine Data Processing 110,031 124,421 125,717 132,003 145,203 159,723

Marine - Other 14,186 41,912 25,300 30,000 30,000 30,00

Marine 1,253,039 1,518,033 1,512,458 1,773,901 2,076,599 2,308,78

Other 260 251

Net operating revenues 1,253,299 1,518,284 1,512,458 1,773,901 2,076,599 2,308,782

Growth, y-o-y 41% 21% (0)% 17% 17% 11%

Cost of sales (643,434) (642,423) (616,730) (762,435) (948,247) (1,016,870)

Gross profit 609,865 875,861 895,727 1,011,465 1,128,353 1,291,913

Gross profit margin 48.7% 57.7% 59.2% 57.0% 54.3% 56.0%

R&D (24,281) (38,323) (35,307) (35,478) (37,379) (41,558)

SG&A (50,822) (61,372) (59,163) (62,087) (64,375) (71,572)

D&A (397,881) (484,276) (430,096) (465,112) (492,938) (551,572)

Impairment (2,583) 811

Other 4,400 1,084 600

(Loss)/income from operations 138,698 293,785 371,761 448,789 533,661 627,210

Operating profit margin 11% 19% 25% 25% 26% 27%

Income (los s) fr om associated companies (12,389) (4,214) (1,500)

Interest income 300

Interest expense (42,170) (37,787) (38,400) (38,000) (34,000) (34,000)

Other financial items, net (19,626) (23,310) (1,000)

Income before tax 64,513 228,474 331,161 410,789 499,661 593,210

Income taxes (30,045) (42,933) (96,900) (93,237) (99,898) (127,963)

Tax rate 47% 19% 29% 23% 20% 22%

Income from discontinued ops 589

Minority Interest (1,367) 2

Adjusted net income 33,690 185,543 234,261 317,552 399,763 465,247

Growth, y-o-y (70)% 451% nm 36% 26% 16%

Shares issued, ave. 217,240 216,635 215,072 215,072 215,072 215,07Weighted shares, ave. 217,814 217,468 215,782 215,782 215,782 215,78

EPS, Basic 0.16 0.86 1.09 1.48 1.86 2.16

EPS, Diluted 0.15 0.85 1.09 1.47 1.85 2.16

DPS, Basic 0.18 0.26 0.50 0.55 0.65 0.75

Gross margin 49% 58% 59% 57% 54% 56%

EBITDA 534,762 777,459 816,258 913,901 1,026,599 1,178,78

EBITDA margin 43% 51% 54% 52% 49% 51%

Operating margin 11% 19% 25% 25% 26% 27%

Pre-tax margin 5% 15% 22% 23% 24% 26%

Net margin 3% 12% 15% 18% 19% 20%

Tax rate, % 47% 19% 29% 23% 20% 22%


Income analysis:


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17 January 2014

19

PGS - Cash flow

USD, '000 2011A 2012A 2013F 2014F 2015F 2016


Minorities 1,367 (2)

Adjusted depreciation 397,881 484,276 430,096 465,112 492,938 551,57

Change in working capital 10,638 40,311 (14,032) (13,072) (15,135) (11,609)

Other items 36,804 42,775 11,100

Cash flow from operations 480,380 752,903 661,426 769,592 877,566 1,005,210per share 2.21 3.48 3.08 3.58 4.08 4.67

Capital expenditure (299,060) (358,465) (465,000) (430,000) (510,000) (230,000)

Investment in multi-client (203,922) (297,444) (369,900) (345,000) (350,000) (370,000)

Dividends (41,510) (60,900) (107,536) (118,289) (139,797)

Net cash flow from operations (22,602) 55,484 (234,374) (112,944) (100,724) 265,414


Acquisitions (94)

Divestments 29 4,308 10,445

Proceeds from share issues 4,203 7,094

all other items (121,486) (66,883)

Surplus/Deficit (139,856) (91) (223,929) (112,944) (100,724) 265,414


PGS - Balance sheet

US$ thousands 2011A 2012A 2013F 2014F 2015F 2016F

Cash 518,390 482,624 482,624 482,624 482,624 482,62



Net fixed assets 1,292,583 1,437,718 1,760,808 2,030,577 2,366,791 2,403,78

Intangibles 608,698 664,937 746,651 786,770 817,617 829,04

Other non current assets 275,295 248,755 237,655 237,655 237,655 237,655

Long term creditors (79,874) (67,494) (67,494) (67,494) (67,494) (67,494)Capital employed 2,708,271 2,838,576 3,235,867 3,558,826 3,941,023 4,001,060

Ordinary shareholders funds 1,771,498 1,921,720 2,095,081 2,305,098 2,586,571 2,912,021


Short term debt 183,107 979 979 979 979 97

Long term debt 753,474 915,838 1,139,767 1,252,711 1,353,434 1,088,021

Capital employed from debt 2,708,271 2,838,576 3,235,867 3,558,826 3,941,023 4,001,060

No. of shares in issue, mn 217 217 217 217 217 21

NBV per share 8.2 8.9 9.7 10.6 11.9 13.4

Net debt 418,191 434,193 658,122 771,066 871,789 606,37


Ratios

RoE, % 1.9 10.0 11.7 14.4 16.3 16.

Net debt to equity, % 23.6 22.6 31.4 33.4 33.7 20.

Net debt to debt plus equity, % 15.4 15.3 20.3 21.7 22.1 15.

ROACE, % 3.6 8.6 8.7 10.2 11.3 12.3



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17 January 2014

20


Petroleum Geo-Services (PGS.OL) Stock Rating: OVERWEIGHT

Income statement ($k) 2012A 2013E 2014E 2015E CAGR Price (15-Jan-2014) NOK 73.40

Price Target NOK 93.00

Why Overweight?PGS is positioned to benefit fromthe increase we expect in seismic pricing.

Additionally, it is strengthening its position in the highend of the market with the construction of newgeneration Ramform vessels.

Upside case NOK 150.00

We assume that marine contract seismic pricingincreases at 20% per annum faster than ourestimates, towards the peak levels seen in 2008. Thisthen forms a high case for our DCF-based valuation.

Downside case NOK 60.00

We assume that marine contract seismic pricing fallsat 5% points worse than our estimates in 2014 and2015, back towards the trough levels of 2010. Thisthen forms a lower base for our DCF-based valuation.




Revenue 1,518,284 1,512,458 1,773,901 2,076,599 11.0%

EBITDA 777,459 816,258 913,901 1,026,599 9.7%

EBIT 293,785 371,761 448,789 533,661 22.0%

Pre-tax income 228,474 331,161 410,789 499,661 29.8%Net income (adj) 185,543 234,261 317,552 399,763 29.2%

EPS (adj) ($) 0.85 1.09 1.47 1.85 29.5%

Diluted shares (k) 217,468 215,782 215,782 215,782 -0.3%

DPS ($) 0.26 0.50 0.55 0.65 36.3%


EBITDA margin (%) 51.2 54.0 51.5 49.4 51.5

EBIT margin (%) 19.3 24.6 25.3 25.7 23.7

Pre-tax margin (%) 15.0 21.9 23.2 24.1 21.0

Net (adj) margin (%) 12.2 15.5 17.9 19.3 16.2

ROA (%) 5.8 6.7 8.2 9.3 7.5

ROE (%) 10.0 11.7 14.4 16.3 13.1

ROACE (%) 10.5 10.3 11.8 13.0 11.4

Balance sheet and cash flow ($k) CAGR


Cash and equivalents 482,624 482,624 482,624 482,624 0.0%

Total assets 3,273,983 3,696,600 4,087,535 4,548,433 11.6%

Short and long-term debt 916,817 1,140,746 1,253,690 1,354,413 13.9%

Other long-term l iabi lit ies 67,494 67,494 67,494 67,494 0.0%

Total liabilities 1,352,224 1,601,479 1,782,398 1,961,823 13.2%

Shareholders' equity 1,921,720 2,095,081 2,305,098 2,586,571 10.4%

Minorities 39 39 39 39 0.0%

Net debt/(funds) ($mn) 434,193 658,122 771,066 871,789 26.2%

Capital employed 2,355,952 2,753,243 3,076,202 3,458,399 13.7%

Change in working capital 40,311 -14,032 -13,072 -15,135 N/A

Cash flow from operations 752,903 661,426 769,592 877,566 5.2%

Capital expenditure -655,909 -834,900 -775,000 -860,000 N/ADividends paid -41,510 -60,900 -107,536 -118,289 N/A

Net cash from operations 55,484 -234,374 -112,944 -100,724 N/A

Free cash flow 96,994 -173,474 -5,408 17,566 -43.4%

Net cash surplus/(deficit) -91 -223,929 -112,944 -100,724 N/A


P/E (adj) (x) 14.1 11.1 8.2 6.5 10.0

EV/EBITDA (x) 3.9 4.0 3.7 3.4 3.8

Equity FCF yield (%) 3.7 -6.7 -0.2 0.7 -0.6

P/BV (x) 1.4 1.2 1.1 1.0 1.2

P/Sales (x) 1.7 1.7 1.5 1.3 1.5

Dividend yield (%) 2.1 4.1 4.6 5.4 4.1

Net debt/capital (%) 18.4 23.9 25.1 25.2 23.2

Total debt/capital (%) 38.9 41.4 40.8 39.2 40.1Net debt/equity (%) 22.6 31.4 33.4 33.7 30.3

Selected operating metrics (NOKmn)

Backlog ($mn) 829 N/A N/A N/A

Order intake 0 0 0 0


Value

Quality

Sentiment

Low High
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21/44


17 January 2014

21

Polarcus (EW, PT NOK 6.20 from NOK7)

Right things, but tough market

Polarcus continues to do the right things, in our opinion. It has focused on debt reduction

over the year and renegotiated its covenants, enabling it to take on more, if still small

amounts, of multi-client work. However, with high gearing, negative blips in pricing hit the

company hard. In this respect 26% idle time in 4Q13 on top of weakened pricing will likely

have a large impact on earnings we cut our FY 2013 net income forecast by 12%. In

addition, we reduce our estimates for marine late sales, given limited success so far,

reducing our 2014F EPS by over 20%, albeit caUS$15mn in absolute terms. The problem

that we foresee is that with a weak 4Q13 and likely 1Q14, the companys rolling 12-month

debt service ratio covenant will, on our numbers, come under pressure, albeit not broken, as

the limit steps up to 2.25x from 2x in 1Q14. This should not be an issue once seasonal

pricing hits in the summer months, and given the transitory nature and the relationship the

company has with its lenders, we do not see it as an issue. However, with sharply reduced

numbers our price target falls to NOK6.20 a share, and while still offering 37% upside

potential, with the balance sheet likely to once again be a concern, we downgrade to Equal

Weight.

Small move, big swings: We have argued in the past that small moves in pricing for

Polarcus lead to large swings in earnings, partly because we are dealing with relatively small

numbers and partly because of the companys high interest charge. For example, in 2013

we expect over 60% of EBIT to go toward debt service. This burden will reduce over time

and the company is making strides to accelerate that where possible, but in the meantime,

by moving towards a flatter outlook for pricing, we reduce our estimates sharply.

Covenants again: In 3Q13 the company renegotiated its debt covenants. The key is the

debt service ratio (EBITDA/(total interest+principal repayments)). To its credit, the company

gives its debt service requirement and hence it is purely a matter of looking at the last

twelve months EBITDA. Through 2013 the ratio has been running at ca 2.1x versus a limit

of 2x. Since we expect pricing to be flat around the turn of the year then as the ratio steps

up to 2.25x, a level not recorded in the past twelve months, then the rolling nature of thecovenant could become an issue. We would note that this is only transitory and on our

numbers the company is slight slightly above it, given a 10% step down in debt service

requirements at the same time. In addition, a lot depends on the multi-client late sales. The

company now has a library of US$85mn, with a gross investment over US$100mn by year

end on our numbers, and the ability now, with revised covenants, to allocate more capacity

to the business. As yet, however, late sales have amounted to just US$17mn, albeit, with

such a small library sales will predictably be lumpy. Our numbers do include some sales over

the 4Q13-1Q14 period, but not to the level that a US$85mn library would imply.


22/44


17 January 2014

22

Debt service ratio limits appear achievable

0

1

2

3

4

1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14

x

Debt service ratio (EBITDA/int expense) New Debt service ratio Limit


Earnings cut by 7-26% in 2014-2015F: Due to the operating and financial leverage of this

small cap stock, we are cutting our 2014F EPS by 26% and 2015F by 7%. Thus, we are

reducing our DCF-based price target to NOK 6.2/share from NOK7/share previously and

downgrade to Equal Weight.


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17 January 2014

23

Income statement

$ mn 2011A 2012A 2013F 2014F 2015F 2016F

Contract revenues 274,757 495,218 504,509 493,360 503,112 523,464

Multi-client pre-funding sales 20,572 14,818 24,153 36,000 51,000 51,000

Multi-client late sales 0 15,080 8,961 25,000 30,000 35,000

Other income 3,248 4,171 529 0 0 0

Total revenues 298,577 529,287 538,152 554,360 584,112 609,464

Vessel operating expenses (188,932) (312,680) (304,207) (306,714) (292,635) (295,135)

SG&A (33,327) (26,343) (30,139) (28,000) (30,000) (30,000)EBITDA 76,318 190,264 203,806 219,646 261,476 284,328

Depreciation and Amortisation (60,800) (91,461) (91,268) (97,461) (101,440) (103,690)Impairments and exceptiona s 0 (7,405) 0 0 0 0

EBIT 15,518 91,398 112,538 122,184 160,036 180,638

EBIT margin 20.9% 22.0% 27.4% 29.6%

Financial income 5,762 10,093 6,289 2,800 3,000 3,000

Financial expense (59,472) (93,449) (79,114) (58,080) (52,774) (39,502)

Other financial items 6,720 3,650 (73) 0 0 0

Profit before tax (31,472) 11,692 39,561 66,904 110,262 144,137

Taxation (25) (1,864) 0 (4,683) (8,270) (14,414)

Tax rate, % 0% 16% 0% 7% 8% 10%

Minorities 0.0 0.0 0.0 0.0 0.0 0.0

Net income reported (31,497) 9,828 36,255 62,221 101,993 129,723

Net income adjusted (31,497) 9,828 36,255 62,221 101,993 129,723

Average number of shares 420,790 498,863 507,196 507,196 507,196 507,196

Diluted number of shares * 431,592 577,229 585,562 585,562 585,562 547,870

EPS, basic (0.07) 0.02 0.07 0.12 0.20 0.26

EPS, diluted adjusted, US$ (0.09) 0.02 0.07 0.12 0.19 0.24

EPS, diluted adjusted, NOK (0.5) 0.1 0.4 0.7 1.1 1.5Source: Company data, Barclays Research. * excludes warrants and the 2008 co nvertible, 2011 co nvertible anti-dilutive in 2011


24/44


17 January 2014

24

Cash flow

$ mn 2011A 2012A 2013F 2014F 2015F 2016F

Adjusted net income (31,497) 9,828 36,255 62,221 101,993 129,723


Depreciation & amortisation 77,241 91,461 91,268 97,461 101,440 103,690

Change in working capital (16,315) 10,813 (54,833) 16,981 21,019 (1,268)

Other items (35,018) 24,100 58,706 4,418 54,233 57,275

Cash flow from operations (5,589) 136,202 131,396 176,663 278,685 289,420

per share (0.0) 0.3 0.3 0.3 0.5 0.6



Dividends 0 0 0 0 0 0

Net cash flow from operations (322,861) (227,033) 24,091 72,663 147,685 158,420


Acquisitions 0 (4,846) 0 0 0 0

Divestments 0 0 128,003 0 0 0

Proceeds from share issues 41,106 38,935 16 0 0 0

all other items (9,853) (6,846) (20,208) (13,333) (13,333) (13,333)

Surplus/Deficit (291,608) (199,790) 131,902 59,330 134,352 145,087Source: Company data, Barclays Research

Balance sheet

$ mn 2011A 2012A 2013F 2014F 2015F 2016F

Cash 84,019 52,191 67,012 81,818 81,057 125,001



Net fixed assets 872,213 999,825 987,857 963,506 944,966 926,426

Other non current assets 28,060 0 0 0 0 0

Other non current liabilities (381) (185) (9,257) 4,076 8,494 8,494

Capital employed 1,048,881 1,282,562 1,214,733 1,232,429 1,257,960 1,343,815

Ordinary shareholders funds 429,756 481,407 523,110 585,330 687,323 817,046


Short term debt 38,274 109,547 36,061 36,061 36,061 36,061

Long term debt 580,850 691,607 655,563 611,038 534,576 490,708

Capital employed from debt 1,048,880 1,282,561 1,214,733 1,232,429 1,257,960 1,343,815

No. of shares in issue 420,790 498,863 507,196 507,196 507,196 507,196

NBV per share 1.0 1.0 1.0 1.2 1.4 1.6

Net debt (incl leases) 535,105 748,963 624,611 565,281 489,580 401,768


Ratios

Net debt to equity, % 124.5 155.6 119.4 96.6 71.2 49.2

Net debt to debt plus equity, % 51.0 58.4 51.4 45.9 38.9 29.9

RoE,% (7.7) 2.2 7.2 11.2 16.0 17.2

RoACE, % 1.6 6.6 8.7 9.3 11.9 12.5Source: Company data, Barclays Research


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17 January 2014

25


Polarcus Ltd. (PLCS.OL) Stock Rating: EQUAL WEIGHT



Why Equal Weight?Despite short-term pressure onmarine contract pricing, we see it continuing to move

higher and the company deleveraging rapidly.


We assume that marine contract seismic pricingincreases 17-20% points per annum more than ourestimates in 2014 and 2015, towards peak levels seenin 2008, and this then provides a higher base for ourDCF-based valuation.


We assume that marine contract seismic pricing fallsat 10% points worse than our estimates in 2014 and2015, towards trough levels seen in 2010, and thisthen provides a lower base for our DCF-basedvaluation.




Revenue 529,287 538,152 554,360 584,112 3.3%

EBITDA 190,264 203,806 219,646 261,476 11.2%

EBIT 91,398 112,538 122,184 160,036 20.5%


EPS (adj) ($) 0.02 0.07 0.12 0.19 114.7%

Diluted shares (k) 577,229 585,562 585,562 585,562 0.5%

DPS ($) 0.00 0.00 0.00 0.00 N/A


EBITDA margin (%) 35.9 37.9 39.6 44.8 39.6

EBIT margin (%) 17.3 20.9 22.0 27.4 21.9

Pre-tax margin (%) 2.2 7.4 12.1 18.9 10.1

Net (adj) margin (%) 1.9 6.7 11.2 17.5 9.3

ROA (%) 0.8 2.7 4.8 7.7 4.0

ROE (%) 2.2 7.2 11.2 16.0 9.2

ROACE (%) 7.0 9.2 9.9 12.7 9.7




Total assets 1,372,434 1,286,026 1,295,320 1,337,083 -0.9%

Short and long-term debt 801,154 691,624 647,099 570,637 -10.7%

Other long-term liabilities 185 186 186 186 0.2%

Total l iabilities 891,026 753,846 714,252 658,440 -9.6%

Shareholders' equity 481,407 523,110 585,330 687,323 12.6%

Minorities 0 0 0 0 N/A

Net debt/(funds) 748,963 624,611 565,281 489,580 -13.2%

Capital employed 1,230,370 1,147,721 1,150,612 1,176,903 -1.5%

Change in working capital 10,813 -54,833 16,981 21,019 24.8%


Capital expenditure -363,235 -107,305 -104,000 -131,000 N/ADividends paid 0 0 0 0 N/A

Net cash from operations -227,033 24,091 72,663 147,685 N/A

Free cash flow -227,033 24,091 72,663 147,685 N/A

Net cash surplus/(deficit) -199,790 131,902 59,330 134,352 N/A


P/E (adj) (x) 38.9 10.8 6.3 3.9 15.0

EV/EBITDA (x) 5.9 4.9 4.3 3.3 4.6

Equity FCF yield (%) -60.9 6.4 19.2 38.9 0.9

P/BV (x) 0.8 0.7 0.6 0.6 0.7

P/Sales (x) 0.7 0.7 0.7 0.6 0.7

Dividend yield (%) 0.0 0.0 0.0 0.0 0.0

Net debt/capital (%) 60.9 54.4 49.1 41.6 51.5

Total debt/capital (%) 65.1 60.3 56.2 48.5 57.5Net debt/equity (%) 155.6 1 19.4 96.6 71.2 110.7

Selected operating metrics ($k)

Backlog 265,000 N/A N/A N/A



Value

Quality

Sentiment

Low High
https://live.barcap.com/go/BC/composite/GER_COMPANY?ticker=PLCS.OLhttps://live.barcap.com/go/BC/barcaplive?menuCode=MENU_FI_WELCOMEhttps://live.barcap.com/go/BC/barcaplive?menuCode=MENU_FI_WELCOMEhttps://live.barcap.com/go/BC/composite/GER_COMPANY?ticker=PLCS.OL


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17 January 2014

26

TGS (UW, PT NOK 180, from NOK 190)

Steady, but investments down

TGS remains, in our opinion, one of the best-run seismic companies. And, following the

disappointment of 3Q13, its latest update is encouraging. Late sales in 4Q13 surpassed

short-term expectations, bucking what we feel will be the trend elsewhere, highlighting

once again, to us that it is the quality of multi-client not the quantity that counts. However,

when quality is consistent, for investors it is the quantity that drives share price. Hence, an

investment level of US$390-460mn, encompassing our US$450mn estimate, while

encouraging that it was not a further disappointment, is still some 20% off where we

thought it might be a year ago. Less investment equals less value generation and with

limited upside to our reduced NOK180/share price target, we remain Underweight.

Investment equals value: We believe TGS is doing the right thing. It has scaled back its

investment level, partly in the face of increased competition, and continues to focus on the

best return potential projects. Its focus and lack of assets allow it to be rigorous. However,

the value of TGS is largely a mathematical exercise. It is to us an investment vehicle with a

defined return. That return, while under pressure, appears to be holding, but the investment

level has fallen. The top end of the range for 2014 is some 20% lower than guidance for

2013 a year ago. This level, in our opinion, drives the share price and hence, as the chart

below shows, we see limited upside potential.

TGS total shareholder returns versus investment guidance

0

100

200

300

400

500

600

0

2

4

6

8

10

12

14

16

Guidance mid pnt $mn indexed share price

Source: Company data, Datastream, Barclays Research

Right areas for late sales:The key to the multi-client business, in our opinion, is having the

right data in the right place, at the right time. TGS's business model is dedicated to this. It

appears also that 2014 could be good for late sales as well. The announced central Gulf of

Mexico sale in March 2014, rounds in Nova Scotia in April 2014, the 23rd round in Norway

in 2H14 and the 28th licence round in the UK in 1H14 all bode well. Furthermore, the

potential Madagascar round in 1H14 could help the company.

Ahead of the curve on vessels for 1H13: From its published activity chart the company

looks to us to have been busy in securing early capacity, taking advantage of the weak

4Q13 contract market. Furthermore, the company believes that pricing may wane and help

it later in the year. 1Q14 looks particularly busy with five 3D vessels, two 2D vessels and

three land crews active. Furthermore, the company has secured capacity for the North Sea

summer season, protecting against any price spike that could occur, however unlikely.


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17 January 2014

27

Earnings left largely unchanged: TGSs recent guidance for 2014 was in line with our

expectations, leading to minimal EPS changes of a 2% reduction in 2014 and 1% increase in

2015. However, beyond that we have implied a lower level of investments in the medium

term, leading to a cut to our DCF-based price target of NOK180/share from NOK190/share

previously and we remain Underweight.

Income statement

US$ '000 2010A 2011A 2012A 2013F 2014F 2015F

Net late sales 380,300 419,400 563,825 644,400 645,000 677,250Net pre-funding 162,700 147,400 338,200 178,400 210,000 237,500

Other (incl. Stingray) 25,300 41,700 30,200 59,078 62,000 65,100

Exceptional 0 0 0 0 0 0

Total revenues 568,263 608,567 932,225 881,878 917,000 979,850

Operating costs (83,496) (119,672) (130,148) (146,557) (150,000) (155,000)

EBITDA 484,767 488,895 802,090 735,321 767,000 824,850

Multi-client amortisation (247,874) (241,509) (387,305) (345,044) (376,200) (402,490)

Other depreciation & amortisation (9,785) (6,984) (12,480) (14,453) (14,000) (14,000)

EBIT 227,108 240,401 402,305 375,824 376,800 408,360

Net financing income 1,452 2,975 4,813 2,559 3,700 4,200

Other financial items (815) (2,229) 432 (4,513) 0 0

Profit before tax 227,745 241,147 407,550 373,870 380,500 412,560

Taxation (71,962) (70,459) (123,017) (112,612) (114,150) (123,768)

Tax rate, % 32% 29% 30% 30% 30% 30%


Net income reported 155,783 170,688 284,533 261,258 266,350 288,792

Net income adjusted 155,368 171,125 284,533 261,258 266,350 288,792

Average number of shares 102,595 101,984 101,827 101,827 101,827 101,827

Diluted number of shares 104,406 103,416 103,166 103,166 103,166 103,166

EPS, basic reported, US$ 1.52 1.67 2.79 2.57 2.62 2.84

EPS, diluted reported, US$ 1.49 1.65 2.76 2.53 2.58 2.80

EPS, diluted adjusted, US$ 1.49 1.65 2.76 2.53 2.58 2.80

EPS, diluted adjusted, NOK 9.0 9.3 16.0 14.8 15.4 16.7

DPS, NOK 5.0 6.0 8.0 8.5 8.8 8.3

Payout ratio 55% 64% 49% 58% 58% 50%Source: Company data, Barclays Research


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28

Cash flow

US$ '000 2010A 2011A 2012A 2013F 2014F 2015F



Depreciation & amortisation 257,659 248,493 399,785 359,497 390,200 416,490

Change in working capital 24,503 16,182 (16,168) (4,526) (3,512) (6,285)

Other items (28,762) 50,664 (5,105) (6,111) (4,000) (4,500)

Cash flow from operations 408,768 486,464 663,045 610,118 649,038 694,497

per share 4.0 4.8 6.5 6.0 6.4 6.8



Dividends (64,742) (93,407) (103,325) (140,033) (148,273) (151,163)

Net cash flow from operations 67,502 96,762 51,102 (10,410) 36,764 43,334


Acquisitions (3,625) (43,851) (75,750) 0 0 0

Divestments 375 0 0 0 0 0

Proceeds from share issues (25,875) (14,263) 6,563 0 0 0

all other items 1,865 2,677 4,598 6,111 4,000 4,500

Surplus/Deficit 39,867 41,325 (13,487) (4,299) 40,764 47,834Source: Company data, Barclays Research

Balance sheet

US$ '000 2010A 2011A 2012A 2013F 2014F 2015F

Cash 290,185 335,709 338,673 334,374 375,139 422,973



Net fixed assets 15,245 19,562 32,025 63,072 94,572 107,072

Intangibles 545,149 644,263 818,390 908,341 950,641 1,021,651

Other non current assets 53,796 29,331 34,725 34,725 34,725 34,725

Other non current liabilities (100,402) (142,300) (142,804) (142,804) (142,804) (142,804)

Capital employed 908,772 973,022 1,168,360 1,289,585 1,407,662 1,545,291

Ordinary shareholders funds 908,771 973,021 1,168,360 1,289,585 1,407,662 1,545,291


Short term debt 0 0 0 0 0 0Long term debt 0 0 0 0 0 0

Capital employed from debt 908,771 973,021 1,168,360 1,289,585 1,407,662 1,545,291

No. of shares in issue 102,595 101,984 101,827 101,827 101,827 101,827

NBV per share (US$) 8.9 9.5 11.5 12.7 13.8 15.2

Net debt (290,185) (335,709) (338,673) (334,374) (375,139) (422,973)

Net debt per share (US$) (2.8) (3.3) (3.3) (3.3) (3.7) (4.2)

Ratios

RoE,% 17.8 18.2 26.6 21.3 19.7 19.6

RoACE, % (gross) 17.7 18.1 26.2 21.4 19.6 19.4Source: Company data, Barclays Research


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17 January 2014

29


TGS-NOPEC Geophysical Company ASA (TGS.OL) Stock Rating: UNDERWEIGHT



Why Underweight?Based on our sum-of-the-partsanalysis, we believe that there is limited upside to the

value attributed to TGS's future investments.


Group revenue growth is 10% in 2013 -2015, weassume a long-term sales to capex ratio of 2.2x andthe stock trades at a 20% premium to DCF.


We assume that TGS will attain a long-term sales tocapex ratio of 2.0x. Less impressive growth leads tothe stock trading only in line with DCF.




Revenue 932,225 881,878 917,000 979,850 1.7%

EBITDA 802,090 735,321 767,000 824,850 0.9%

EBIT 402,305 375,824 376,800 408,360 0.5%


EPS (adj) ($) 2.76 2.53 2.58 2.80 0.5%

Diluted shares (k) 103,166 103,166 103,166 103,166 0.0%

DPS (NOK) 8.0 8.5 8.8 8.3 1.3%


EBITDA margin (%) 86.0 83.4 83.6 84.2 84.3

EBIT margin (%) 43.2 42.6 41.1 41.7 42.1

Pre-tax margin (%) 43.7 42.4 41.5 42.1 42.4

Net (adj) margin (%) 30.5 29.6 29.0 29.5 29.7

ROA (%) 18.9 15.2 14.6 14.7 15.8

ROE (%) 26.6 21.3 19.7 19.6 21.8

ROACE (%) 38.9 29.5 26.6 26.6 30.4


Intangible fixed assets 818,390 908,341 950,641 1,021,651 7.7%


Total assets 1,685,689 1,758,684 1,889,756 2,050,639 6.8%

Short and long-term debt 0 0 0 0 N/A

Other long-term liabilities 142,804 142,804 142,804 142,804 0.0%

Total l iabilities 517,329 469,099 482,094 505,349 -0.8%

Shareholders' equity 1,168,360 1,289,585 1,407,662 1,545,291 9.8%

Minorities 0 0 0 0 N/A

Net debt/(funds) -342,362 -338,063 -378,828 -426,662 N/A

Capital employed 825,998 951,522 1,028,834 1,118,629 10.6%

Change in working capital -16,168 -4,526 -3,512 -6,285 N/A


Capital expenditure -508,618 -480,495 -464,000 -500,000 N/ADividends paid -103,325 -140,033 -148,273 -151,163 N/A

Net cash from operations 51,102 -10,410 36,764 43,334 -5.3%

Free cash f low 154,427 129,623 185,038 194,497 8.0%

Net cash surplus/(deficit) -13,487 -4,299 40,764 47,834 N/A


P/E (adj) (x) 10.4 11.3 11.1 10.2 10.8

EV/EBITDA (x) 3.2 3.5 3.3 3.0 3.3

Equity FCF yield (%) 5.3 4.5 6.4 6.7 5.7

P/BV (x) 2.5 2.3 2.1 1.9 2.2

P/Sales (x) 3.1 3.3 3.2 3.0 3.1

Dividend yield (%) 4.6 4.9 5.1 4.8 4.8

Net debt/capital (%) -41.0 -35.1 -36.5 -37.8 -37.6

Total debt/capital (%) 0.0 0.0 0.0 0.0 0.0Net debt/equity (%) -29.0 -25.9 -26.6 -27.4 -27.2

Selected operating metrics ($k)

Backlog 142,700 N/A N/A N/A



Value

Quality

Sentiment

Low High
https://live.barcap.com/go/BC/composite/GER_COMPANY?ticker=TGS.OLhttps://live.barcap.com/go/BC/barcaplive?menuCode=MENU_FI_WELCOMEhttps://live.barcap.com/go/BC/barcaplive?menuCode=MENU_FI_WELCOMEhttps://live.barcap.com/go/BC/composite/GER_COMPANY?ticker=TGS.OL


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17 January 2014

30

Comparative valuations

PE pre g/w - historic at year high 2006A 2007A 2008A 2009A 2010A 2011A 2012A 2013F 2014F 2015F

Aker Solutions 34.8 21.6 29.4 9.2 17.5 43.6 16.4 24.8 14.0 11.4

CGGVeritas 18.6 24.7 15.8 nm nm nm 72.6 39.7 13.1 9.7

Hunting 16.8 19.2 35.9 33.8 27.1 21.1 16.8 16.5 11.2 9.9

Maire Tecnimont n/a 39.0 32.8 36.8 45.1 nm nm 22.5 8.8 5.5

Petrofac 21.3 19.3 15.2 15.2 19.6 17.1 15.3 14.2 9.8 8.2

ex IES n/a n/a n/a n/a n/a 14.2 14.3 14.5 10.2 9.2

Petroleum Geo-Services 10.4 11.7 13.7 13.8 nm 110.6 21.3 16.5 8.2 6.5

Polarcus n/a n/a n/a nm nm nm 64.4 18.5 6.2 3.9

Saipem 24.2 23.9 18.6 14.6 19.9 18.5 19.5 (42.1) 12.4 8.9

SBM Offshore 21.8 21.9 25.5 16.5 15.2 nm (16.7) 13.2 7.4 5.3

Seadrill 29.3 19.4 nm 8.6 12.4 20.4 17.2 14.3 9.4 8.0

Subsea 7 SA 18.5 42.1 16.5 12.2 21.1 22.1 16.6 25.2 9.9 8.3

Technip 38.3 56.7 14.7 13.0 18.8 17.5 20.4 19.6 11.3 9.9

Tecnicas Reunidas 23.5 32.8 22.7 15.4 26.3 19.6 15.4 15.6 13.7 12.1

TGS 15.1 16.5 9.5 11.8 15.2 18.4 12.7 15.6 11.0 10.2

Wood Group 21.4 23.9 17.6 13.1 21.8 16.5 16.3 14.1 9.3 9.0

AVG (ex Seismic, SDRL, SPM (2013)) 24.8 26.3 21.8 16.1 20.6 18.8 16.8 16.1 10.8 8.9

EV/EBITDA adj1- historic at year high 2006A 2007A 2008A 2009A 2010A 2011A 2012A 2013F 2014F 2015F

Aker Solutions 16.2 13.5 15.2 6.9 9.8 15.5 9.1 9.8 7.6 6.4

CGGVeritas 7.8 10.8 8.2 9.5 15.9 12.9 9.7 9.7 6.6 5.7

Hunting 7.1 9.8 11.4 8.3 10.8 13.3 10.4 9.6 6.8 5.8

Maire Tecnimont n/a 20.3 20.9 20.3 20.8 nm (8.6) 9.8 7.6 4.6

Petrofac 11.5 10.8 10.1 8.6 12.1 10.9 11.3 10.4 7.0 5.9

Petroleum Geo-Services 9.8 11.7 8.9 6.1 12.6 13.9 10.1 8.6 5.5 4.9

Polarcus n/a n/a n/a n/a 20.1 18.0 7.8 6.8 4.9 3.9

Saipem 13.3 13.6 11.1 9.0 11.1 9.7 10.2 26.7 8.1 5.0

SBM Offshore 11.4 12.2 13.6 7.8 7.9 8.6 9.6 8.7 6.7 5.4

Seadrill 24.5 18.8 11.0 10.2 11.4 11.9 13.1 12.4 9.0 8.0

Subsea 7 SA 11.1 13.2 9.4 5.6 8.4 8.8 8.0 8.7 4.2 3.4

Technip 13.7 17.3 7.2 4.9 8.5 8.7 9.7 9.2 6.4 4.6

Tecnicas Reunidas 26.2 29.3 19.8 11.3 15.2 14.9 11.4 10.4 8.6 7.0

TGS 9.6 10.6 6.2 7.5 8.5 11.2 7.8 9.4 6.5 5.9

Wood Group 10.9 13.0 10.4 7.4 10.9 11.9 10.3 9.1 6.4 5.3

AVG (ex Seismic, SDRL, (SPM (2013)) 13.1 14.9 12.0 8.0 10.7 11.5 10.1 11.3 6.9 5.51Adjus ted for cash downpayments - cash level set to 10% o f SF where prepayments n umber no t availa ble

Seismic multiples based on E BITDA minus multi-client amortization

Source: Company data, Barclays Research estimates (Seadrill covered by James W est) Price as per 15 January 2014


31/44


17 January 2014

31

Valuation Methodology and Risks


Aker Solutions (AKSO NO / AKSO.OL)

Valuation Methodology:Our price target for Aker Solutions is derived from a DCF-based methodology. We have used our forecasted cash flowsfor the 2013-2015F period and thereafter assumed a cyclical growth (10% pa) until a turn in 2017 when revenues fall (10% pa) until 2018.Margins used for 2016-18F period are comparable to peers. Our terminal value is then taken on a (WACC-g) basis assuming 3% long-termgrowth. Our discount rate used is 11%, more conservative thn the 10% that we use for the sector. The valuation is then checked against

historical trading multiples.Risks which May Impede the Achievement of the Barclays Research Price Target:All our estimates are based on Barclays Capital European Oil& Gas equity research teams estimates for future energy supply-demand patterns, exchange rates, commodity prices and the availability ofassets within the oils service industry. These estimates are subject to revision and may be materially different from eventual out comes. Inaddition workload is executed on a global basis in many regions with unstable regimes. All estimates assume no marked changes in the currentpolitical landscape. For Aker Solutions specifically, some earnings are exposed to lump sum contracts, which if executed incorrectly can producesignificant negative margins. In addition backlog award can be lumpy and profit recognition on projects is often in a non-linear fashion. As aresult there may be periodic swings in profitability.

AMEC plc (AMEC LN / AMEC.L)

Valuation Methodology:Rating Suspended

Risks which May Impede the Achievement of the Barclays Research Price Target:Rating Suspended

CGG (CGG FP / GEPH.PA)

Valuation Methodology:CGGVeritas: Our price target for CGGVeritas has been derived from a DCF-based methodology. We have used our

forecasted cash flows for the 2013-2015F period and thereafter assumed a cyclical growth (15% pa) until a turn in 2017 when revenues fall(10% pa) until 2019. Margins used for 2016-19F period are comparable to those over the 2004-2008 period. Our terminal value is then taken ona (WACC-g) basis assuming 3% long-term growth. Our discount rate used is 11%, ahead of the 10% that we use for the sector to account forthe extreme cyclicality seen in the seismic industry. The valuation is then checked against historical trading multiples.

Risks which May Impede the Achievement of the Barclays Research Price Target:All our estimates are based on Barclays Capital European Oiland Gas equity research teams estimates for future energy CGGVeritas: All our estimates are based on Barclays Capital European Oil & Gas equityresearch teams estimates for future energy supply-demand patterns, exchange rates, commodity prices and the availability of assets within theoils service industry. These estimates are subject to revision and may be materially different from eventual out comes. In addition workload isexecuted on a global basis in many regions with unstable regimes. All estimates assume no marked changes in the current political landscape.For CGGVeritas specifically the earnings in seismic companies depend on the supply of new boats. Also the company executes multi-client work,using its own capital. Future sales of this work may materially change results.

Hunting (HTG LN / HTG.L)

Valuation Methodology:Our price target for Hunting has been derived from a DCF-based methodology. We have used our forecasted cash flowsfor the 2013-2015F period and thereafter assumed a cyclical growth (15% pa) until a turn in 2017 when revenues fall (10% pa) until 2018. Ourterminal value is then taken on a (WACC-g) basis assuming 3% long-term growth. Our discount rate used is 10%, in-line with the 10% that weuse for the sector. The valuation is then checked against historical trading multiples.

Risks which May Impede the Achievement of the Barclays Research Price Target:All our estimates are based on Barclays Capital European Oil& Gas equity research teams estimates for future energy supply-demand patterns, exchange rates, commodity prices and the availability ofassets within the oils service industry. These estimates are subject to revision and may be materially different from eventual outcomes. Allestimates assume no marked changes in the current political landscape.

Maire Tecnimont (MT IM / MTCM.MI)

Valuation Methodology:Maire Tecnimont: Our price target for Maire Tecnimont has been derived from a DCF-based methodology. We haveused our forecasted cash flows for the 2012-2014F period and thereafter assumed a cyclical growth (10% pa) until a turn in 2015 whenrevenues fall (10% pa) until 2017. Margins used for 2015-17F period are comparable to those over the 2006-2008 period. Our terminal value isthen taken on a (WACC-g) basis assuming 3% long-term growth. Our discount rate used is 12%, ahead of the 10% that we use for the sector toaccount for its low free float and liquidity. The valuation is then checked against historical trading multiples.

Risks which May Impede the Achievement of the Barclays Research Price Target:All our estimates are based on Barclays Capital European Oil& Gas equity research teams estimates for future energy supply-demand patterns, exchange rates, commodity prices and the availability of

assets within the oils service industry. These estimates are subject to revision and may be materially different from eventual out comes. Inaddition workload is executed on a global basis in many regions with unstable regimes. All estimates assume no marked changes in the currentpolitical landscape. For Maire Tecnimont specifically, earnings are exposed to lump-sum contracts, which if executed incorrectly can producesignificant negative margins. In addition backlog award can be lumpy and profit recognition on projects is often in a non-linear fashion. As aresult there may be periodic swings in profitability.

Petrofac (PFC LN / PFC.L)

Valuation Methodology:Our price target for Petrofac has been derived from a DCF-based methodology. For the non-IES businesses we haveused our forecasted cash flows for the 2013-2016F period and thereafter assumed a cyclical growth (15% pa) until a turn in 2017 whenrevenues fall (15% pa) until 2018. Margins used for 2016-18F period are comparable to those over the 2004-2009 period. Our terminal value isthen taken on a (WACC-g) basis assuming 3% long-term growth. Our discount rate used is 10%, in line with the 10% that we use for the sector.For IES we have used and asset-by-asset sum-of-the-parts, methodology using DCF(10%) where appropriate on a field based model or bookvalue of non E&P assets. We then apply a 30% premium to DCF ex-IES based on historical trading patterns within the sector and the 0-30% thatwe have used for the sector. The valuation is then checked against historical trading multiples.


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17 January 2014

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Valuation Methodology and Risks

Risks which May Impede the Achievement of the Barclays Research Price Target:All our estimates are based on Barclays Capital European Oil& Gas equity research teams estimates for future energy supply-demand patterns, exchange rates, commodity prices and the availability ofassets within the oils service industry. These estimates are subject to re

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