“The objective is to generate cash flow and reduce debt”

How did 2021 go? Are you satisfied with the group’s results?

Yes, I am satisfied. After a difficult first half of the year, we ended the year as we had planned. We therefore caught up very well in the second half, particularly in the multi-client business. In the first half, data sales were depressed. It was a continuation of the second half of 2020, at the height of the health crisis. The international client companies have been very affected, they have had to reorganize and reposition themselves as companies that are no longer purely oil-based, but focused on “energy” in the broad sense. Then, there was a strong catch-up during the last six months of 2021. Thus, on the multi-client part, quite linked to exploration investments, we achieved a quarter of our turnover in the first half and the three quarters, in the second half.

This rebound ability reassured me a lot. There is a need for exploration, even if it is not clearly announced by the oil companies. There was a delay in the purchase of seismic data, except in Norway, which held up better, thanks to the presence of a very active national company and independent companies less subject to environmental pressure. The subsurface imaging part is used in extraction and production to optimize the reservoir, and it held up better, thanks to a longer backlog and the fact that customers prioritized this type of activity. In equipment, there was good growth. There, we sell to geophysical acquisition service companies, which abruptly stopped buying in 2020. We increased equipment sales sharply from the first quarter, with big business, in the Middle East in particular. This activity grew by 23% in 2021. At the global level of CGG, turnover remained stable, which is good news. In cash, we managed to be positive (excluding the $40 million in debt refinancing), after taking into account $95 million in asset disposals. In a difficult context, these assets were sold at a good price. What is important today is to regain growth, in order to generate cash to be able to deleverage the company.

CGG has therefore regained a good momentum in sales. What about profitability?

The company generated an Ebitda of 337 million dollars, which gives a ratio of 36% and a current operating profit adjusted for exceptional items, of 78 million, or a margin rate of 8%. CGG is therefore a profitable company. The real subject is the generation of cash flow. CGG’s objective today is to generate cash flow and reduce debt.

Were you able to raise the prices?

We are not there yet. The balance between supply and demand is still in favor of our customers today. But we are holding the prices, because we have essential technologies for our customers. When our competitors lowered their prices, often between 20% and 30%, we did not follow, but that does not mean that we were able to increase them. We have a premium positioning and we have had to pricing power, but not yet to the point of raising our prices. Inflation, we are starting to feel it because it is everywhere, but we are mainly suffering from logistical problems and the lack of electronic components. There is no increase in material costs at Sercel, because the company has stock. Regarding wages, after two years without a raise, we thought we would act this year before these events and there, we will obviously catch up.

How do you view current events in Russia and Ukraine? Are you present in this area?

We of course deplore the conflict in Ukraine, where we are not present. We have Russian teams in Russia and we are worried about the consequences for them. It is a seismic equipment sales activity, but it does not exceed 40 million dollars, or 4% of the group’s turnover.

The rise in oil prices is rather beneficial for CGG…

Geopolitics has boosted crude oil prices, but the price per barrel is also high for fundamental reasons related to supply and demand. Before the conflict in Ukraine, we had already anticipated a rise in oil prices due to under-investment in exploration-production. They are 30% below what they should be to satisfy demand, which will not drop in the next ten to twenty years. The current level of production will have to be maintained for longer. Our clients are making a lot of money right now and generating a lot of cash flow, but under pressure from investors and politicians, they have indicated that they remain very disciplined about their future spending. We don’t have reliable figures on global investment increases. Each company makes announcements, but the amounts indicated may vary during the year, depending on the market environment. The only ones to have really announced increases of between 20% and 30% are the American companies present on land, because they are more reactive. The direct link between customer spending and the price per barrel is weaker than before. Despite everything, I am convinced that investments in exploration-production should increase by 15% to 20%, after a 40% drop in recent years. We are entering a much more favorable cycle, with an acceleration of the dynamic for CGG rather in 2023. 2022 will be a year when we will get in working order and where we will invest.

How is the seismic market doing?

It depends on the trades. The seismic acquisition part, from which we have come completely out, still suffers from overcapacity. In our three businesses, the markets have shrunk, but we are very big there and we have increased our market share. On the imaging part, we have more than 40%. In multi-clients, we have repositioned ourselves in more dynamic basins, such as Norway, Brazil, the Gulf of Mexico and land in the United States. In this segment, we are three companies of equivalent size, and CGG has a 26% market share. In equipment, we largely dominate, with 55% of the market. In 2021, we benefited from the marketing of new products, seabed sensors, where growth was very strong and will remain so this year.

Are you optimistic for 2022?

The year will be complicated given the problems of logistics, the supply of components, inflation, the repercussions of the Covid crisis, accentuated by the conflict in Ukraine. I am optimistic about the fundamental dynamics of our businesses. However, we are not on the front line of the recovery. We anticipate growth of 10% overall in 2022. Concerning Sercel, after a good rise in 2021, we anticipate a stable year, but we are not immune to a good surprise. In imaging and multi-client, there will be a recovery this year. What will help us are mergers and acquisitions. For example, if company X acquires group Y, which owns seismic data in Brazil, and X wants to keep it, it will have to buy the license to use this data from us, because a license is nominative. CGG sells the licenses to use this data, and we sell it multiple times. This is our multi-client business model. I’ll give you an exceptional example: over the years we have been able to sell data on a very popular block in the Gulf of Mexico about 100 times. I anticipate an acceleration of activity in our businesses rather in 2023, given the need to relaunch hydrocarbon production.

Are the asset disposals complete?

Regarding major assets, there is no immediate project. But if we are approached from outside, we will study the offers on a case-by-case basis. We had been in this situation for the sale of GeoSoftware, which followed numerous takeover proposals.

Regarding your balance sheet, what are you going to do to reduce debt?

Don’t forget that Ebitda was halved between 2019 and 2020. The debt that then seemed at the right level has become far too heavy, especially since we invest around 200 million dollars a year in multi-clients, to which are added 70 million in our other activities and in research. We have restructured all of our debt. The next first maturity has been pushed back to 2027 and the interest rate on this debt has been lowered to 8.25%. We can also count on $319 million in cash and we again benefit from a credit facility of up to $100 million. We must therefore have growth drivers to generate more Ebitda.

What are your growth drivers?

We have targeted professions quite similar to ours and identified eleven areas of activity in three markets: digital sciences, energy transition and, finally, surveillance and observation of infrastructures in particular. For example, we will help mining companies to locate minerals, such as nickel, cobalt, lithium, etc. We can also help characterize reservoirs to sequester carbon. Another example, we can place sensors on bridges or dams to measure their state of aging in real time. They provide information that enables maintenance needs to be anticipated and incidents to be avoided. In the cloud, our scientific computing power is phenomenal. We are the tenth largest computing power in the world, with 291 petaflops. We plan to rent the unused part of our capacities to other energy companies, to carry out their scientific calculation needs there, but also to store all their geological, seismic and other subsoil data there. We also intend to position ourselves in other promising sectors for scientific computing, such as health, automotive, etc. We had three divisions, this will be our fourth pillar. 150 people already work there and we continue to hire. Our ambition is for these “new businesses” to represent more than 20% of our turnover in 2025, compared to 5% today. Thanks to them, we change profile. We are moving towards technological professions with longer contracts. We will therefore be less dependent on oil.

How does CGG participate in the energy transition?

CGG emits very little CO₂, i.e. 45 kilotonnes in 2021 for the scopes 1 and 2 that we control. In addition, we help our customers better identify the subsoil, so we allow them to optimize their drilling and avoid failures, which reduces pollution. In addition, we are acting to green the electricity used by our IT power, we are already at 36% green electricity in 2021.

Is management compensation linked to CGG’s performance in the environment?

Yes of course. My compensation targets related to health, safety and the environment will increase from 20% in 2021 to 30% this year. I am also very proud that the percentage of women in top management has increased in one year from 21% to 24%.

Are you considering a name change?

It is not impossible. We are thinking about it. Our profile is changing into a technology company and we have already taken this into account in the presentation of the company on our website.