CGG Veritas to Withdraw Vessels on Profit Drop

Tara Patel, Bloomberg

CGGVeritas, the world’s largest seismic surveyor, said it will pull vessels from service and delay new deliveries after a slowdown in oil exploration projects led to a 26 percent decline in first-quarter profit.

The company will take “drastic” measures to reduce market overcapacity, Chief Executive Officer Robert Brunck said on a conference call today. The number of specially equipped ships available worldwide for surveys now exceeds demand from the oil industry, he said.

CGGVeritas’s own fleet will drop to about 20 vessels from 27 by the middle of 2010, which may lead to operating losses at the company’s services division in the coming quarters when the costs of reducing the fleet are included, he said.

Oil services companies are cutting costs as crude explorers and producers delay projects following a drop in energy prices from a record in July. CGGVeritas conducts studies and sells equipment for estimating the size of oil and natural-gas deposits. Vessels are typically hired by explorers to study offshore areas for reserves.

Net income fell to $71 million in the first quarter from $95 million a year earlier, the Paris-based company said today. Sales, including Wavefield Inseis ASA, which CGGVeritas agreed to buy in November, fell 2 percent to $851 million.

CGGVeritas fell as much as 1 euro, or 8.4 percent, to a two-week low of 10.90 euros and was trading at 11.10 euros at 12:18 p.m. in Paris. The stock has risen 4.7 percent this year.

‘Rigorous’ Cost Cuts

CGGVeritas said it has undertaken “rigorous” cost-cutting and will remove four surveying vessels from operations this year. Deliveries of new vessels are being postponed and more vessels may be pulled from service next year.

“Looking forward, we expect the typical second-quarter seasonality,” Brunck said in the statement, referring to reduced activity during the period.

CGGVeritas is maintaining a 2009 target of net free cash flow of more than $100 million, Brunck said on the call. He didn’t give a profit forecast.

“Visibility remains particularly low” as oil explorers delay projects and renegotiate contracts, he said. Vessel rates are likely to fall 30 percent this year and CGGVeritas will cut costs at its services division by 15 percent, Brunck said.

The order backlog dropped 25 percent to $1.4 billion from the previous quarter. Group operating margin was 15 percent and capital expenditure was down 21 percent to $175 million.

CGGVeritas agreed to buy Norway’s Wavefield Inseis for $310 million, expanding its fleet to tap increased spending on field data. Surveyors have merged to widen services as reserves become more difficult to reach and costly to exploit. The seismic- survey market grew to $12 billion last year as crude peaked at $147.27 a barrel in July.

The surveyor was created in 2006 when Massy, France-based Compagnie Generale de Geophysique SA bought Houston-based Veritas DGC Inc. Geophysique was founded in 1931 by Conrad Schlumberger and carried out its first survey in West Africa.  

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