Based on preliminary reporting from operating units, TGS management now expects net revenues for the 1st quarter of 2009 to be approximately US $71 million, about 33% lower than revenues reported for the first quarter of 2008.
First quarter revenues were lower than management's expectations due to weaker late sales from the data library in all geographic regions. During January and February sales activity was particularly slow as many oil companies were continuing to revise budgets and spending plans in an uncertain economic climate. Multi-client late sales tend to be lumpy in nature and are historically heavily weighted towards the end of each quarter. Although sales activity picked up noticeably during the second half of March, the sales organization was unsuccessful in closing any of the large scale transactions in progress before the quarter ended. These large scale sales opportunities have not disappeared, but are all still active entering the second quarter.
Additionally, the awards of the blocks offered in Norway's 20th licensing round were not announced in Q1 as expected, but were delayed into the 2nd quarter. These awards typically trigger uplift payments from certain clients as well as new seismic purchases from others. TGS expects the 20th round award announcements to have a significant positive impact on its late sales.
As a result of both the lower level of late sales and the concentration of late sales on the newest projects, the blended multi-client amortization rate for Q1 is likely to be higher than the forecasted range for the full year. This amortization rate does fluctuate from quarter to quarter, depending on the sales mix of projects, and TGS still expects that its full year amortization rate will be in the range of 35-40% of net revenues.
Cash flow was excellent in Q1 as cash holdings increased from US $148 million at year end 2008 to US $226 million as of March 31st, 2009.
Based on current and forecasted activity levels, TGS still expects to achieve annual net revenues of US $530-470 million for 2009 as originally communicated in February.
The full 1st quarter earnings release is scheduled for May 7th, 2009.