Fra DNB 10 okt.
SEISMIC SECTOR
Winter is coming
Streamer vessel demand remains muted (2024e tracks
~10% below pandemic levels). We believe a potential
recovery in the TGS equity case rests on supply-side
discipline remaining intact despite what appears to be a
challenging winter season utilisation-wise along with key
peer Shearwater’s cash flow-supportive agreement with
Viridien expiring in January.
The seismic sector conundrum – aspects that could worsen. Despite the oil price
trading at levels (USD77/bbl) where it started the year, TGS’s share price has seen a
22% negative return YTD, broadly in line with most offshore drillers. As key metrics and
earnings for seismic were largely disappointing in H1, and with investors trying to time
the share-price bottom, we believe it is key to reflect on what can get worse at this point.
Soft utilisation likely for the winter season. Three of TGS’ Ramform-vessels are
inshore, while Ramform Vanguard doing offshore wind characterisation is likely to
become available in late-October. The situation looks challenging for Shearwater as
well, which has yet to commence new work for eight vessels rolling off previous
contracts this summer. We track only two Shearwater vessels actively working, of which
one is operating as a source vessel for ONGC. Some of TGS’s and Shearwater’s idle
vessels could have new work lined up not yet announced.
Announced new contracts in Q3 down ~85% from 2022. Since the TGS/PGS merger
closed on 1 July, we have observed only 150 days of new traditional streamer contracts
announced by TGS (90 days) and Shearwater (60 days) versus the combined c1,000
days of new work over the same period in 2022. Ultimately, we believe a significant
amount of contract announcements in the next month(s) is required to avoid dismal
utilisation levels this winter.
Supply-side discipline key to preserving high dayrates... On a positive note, vessel
dayrates remain high – matching 2014 peaks – and continue to provide solid margin
contribution. However, dayrates did not expand out of the pandemic due to increased
demand but because of strong supply-side discipline. In fact, 2024 demand is tracking
~10% lower than during the pandemic (2020–2021 average).
…with Shearwater carrying the burden. Similar to OPEC in the oil market, in our view
Shearwater has experienced the downside of being the swing capacity. While dayrates
have expanded in recent years, remaining high despite muted demand growth,
Shearwater has seen four consecutive years of declining market share (from 53% in
2020 to 30% in 2024e), while TGS and other single-vessel companies have gained.
Key investor focus. Although our base case is stable dayrates, we highlight increased
risks, with muted demand growth driving soft vessel utilisation ahead of the winter
season along with Shearwater’s cash flow-supportive vessel commitment agreement
with Viridien set to expire in January 2025. In our view, a decline in dayrates would pose
major downside risk to TGS’s investment case, not only negatively affecting its vessel
economics, but also the perceived valuation of its MultiClient business.