CGG - TGS USD600m offer for PGS Data Library and implications for CGG

All,

The TGS USD600m cash offer for the Multi-Client Data Library of PGS has important implications for the asset coverage of CGG’s Unsecured Notes.

Please find our note on CGG here.

 In our estimates, even if one assumes that CGG’s data library is 15% smaller than PGS, the USD600m offer effectively leaves the unsecured notes almost fully covered, on this very conservative estimate of MC library+Net working capital+Excess cash, which of course excludes the value of CGG’s other key segments, such as Geoscience and Equipment. As the transaction also includes the provision of PGS’s acquisition services to TGS, the actual economic amount is likely to be higher than the upfront USD600m cash offer. 

This confirms our view that the Data Library is an asset whose economic depreciation is nonlinear and effectively linked to the amount of data capture that competitors are doing in adjacent areas. These libraries would hold up value better in environments where the reduction of data acquisition capex is synchronized across all players, such as 2014-2016 or the current downturn.

We are looking forward to exchanging ideas on CGG with you.

Juliano