August 14, 2022

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- I think the debt will go down - E24

– I think the debt will go down – E24

The dire situation of the earthquake company PGS turned out. The CEO has an optimistic view of the future, but recognizes that further refinancing will be a challenge.

PGS CEO Ron Olaf Peders is positively looking ahead, preparing for a new refinancing.
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PGS’ big earnings jump from minus to plus in the second quarter and the notification of two new contracts sent seismic stock up directly in the Oslo Stocks – before falling back somewhat later.

The company made headlines in the first half of the year, for good or bad.

The year started with PGS risking not having enough funds to service loans due in 2022, but a decision in early May to pay off debt turned out to be the start of a long-awaited recovery.

– People were worried

The leverage and better prospects of the seismic market made PGS an attractive market share.

PGS CEO Ron Olaf Pedersen told E24 that the situation has turned upside down for Oslo Bors.

The market has come back strong. We avoided breaching loan terms in the first quarter and strengthened the balance sheet in the second quarter. He says the financial situation in terms of potential refinancing looks very different now than it did then.

Pedersen is justified by the optimism in the stock market, where the share of PGS is up nearly 70 percent this year, with the fact that investors expect the company will likely be able to refinance its debt.

– Half a year ago, people were worried that there would be too much stock dilution and that there wouldn’t be much value to shareholders, he points out.

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I think the debt will go down

The CEO believes that the biggest challenge ahead will be refinancing. He is relieved that operating capacity is high enough to cover debt maturities for the next four quarters. However, the arrears are significant in the third quarter of next year.

– The company’s plan is to refinance before that period. And he says that based on the improved market we’re seeing and the increased profits we’re seeing, I think we’ll make it.

He points out that despite the better prospects, it will be difficult to pool new funding in the best possible way.

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The earthquake market has for some time been characterized by overcapacity and many non-functioning boats, but many players expect a rebound in the wake of the oil price jump this year.

Analyst John Olsen at ABG Sundal Collier is confident in the company and is positive about the outlook.

– I think the debt will go down because they will have a very strong “cash flow”, Olaisen says, and stresses that he doesn’t think they will have any problems servicing loans in the future.

According to the quarterly report, PGS had $887 million in interest-bearing debt at the end of the second quarter.

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– Abnormal

The company shared an announcement to the stock exchange Thursday morning that it had been awarded “two significant contracts” in the Asia Pacific region.

One of the contracts is for a 3D survey to be performed in Indonesia by an unnamed “major oil company,” while the other is for a 4D acquisition outside Australia by an unnamed “international energy company.”

The two new contracts we announced provide good coverage of “Ramform Sovereign” in Asia until the end of next year, and there are good opportunities for more work for this boat in the same region, says Pedersen of PGS.

ABG’s Olaisen believes that investors are now focusing on the news about contracts and the outlook for PGS management, which said on Thursday that contract prices for the upcoming winter will be higher than this summer.

– Demand is usually lower and rates are a little lower in the winter, even in good times. The analyst says that it is not normal for the situation to improve in the winter, but indicates the tightness of the market.

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ABG has a target price of NOK 13 for PGS and recommends Olaisen to buy the stock. According to Bloomberg’s overview, five analysts have a buy recommendation on PGS, while one has a hold and five are a sell.

PGS has a market capitalization of NOK 4.2 billion.

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