After a rough few months, PGS emerges from Chapter 11 with high hopes for the future.

PGS has made the news consistently in the past year or so, and most of it has been less than rosy. The Veritas DGC board of directors got cold feet at the last minute in 2002, calling off a proposed merger that might have helped the seismic industry combat some of its overcapacity issues. In due course, the value of a share of PGS stock dropped to the point that a 6-year-old could have purchased several hundred shares with his or her weekly allowance.

The shareholders responded. In September 2002 the company was notified by Umoe AS that, as a 10% shareholder in PGS, it felt that changes were needed at the company, and those changes should be decided by the shareholders. A general meeting was held in which a new board of directors was elected, and Umoe's chief executive officer, Jens Ulltveit-Moe, became PGS chairman.

One of the first tasks at hand was to replace resigning chief executive officer Reidar Michaelsen, and Svein Rennemo was tapped last November to take the helm of the struggling company. On June 18, 2003, PGS proposed a financial restructuring of the company, and on July 29 it filed for Chapter 11 bankruptcy protection.

I talked to Rennemo at the recent annual meeting of the Society of Exploration Geophysicists, just before PGS announced that it had emerged from Chapter 11. With a new slogan, "A Clearer Image," implying both better seismic resolution and perhaps a more transparent way of running its business, PGS appeared on its way to recovery after months of hardship.

The former Statoil executive seems confident that the worst of the storm has passed.
"I came to PGS to address the financial challenge and hopefully get a competent team through a terrible crisis," he said.

Indications that he's done just that include the fact that a majority of both shareholders and creditors approved the restructuring plan put forth by the company. And customers have continued to purchase products and services.

"If the customers had not been behind us, PGS would have been bankrupt," Rennemo said. "We were able to keep the customers satisfied, and the customers have responded by showing their appreciation of the contributions of our company. Without that support, it could have gone very differently."

The main challenge, he said, was the sheer size of the debt problem. PGS carried US $2.5 billion on its balance sheet, a crushing amount for a company of its size. But Rennemo was impressed by its ability to continue making money during the restructuring process.

"This company was able to generate a lot of cash," he said. "The fact that our people have been able to deliver through the crisis is very impressive. That helped bring us through."

It also helped that the creditors showed, through their approval of the restructuring plan, that a viable PGS was worth more to them than a bankrupt PGS that had to be sold off in pieces, he said.

So what will the new PGS look like?

"So far, it has been critical for us to focus on the restructuring 100%," he said. But a strategy process was begun in August. The newly elected board of directors met mid-November and have been evaluating each part of the business - land seismic, marine seismic, floating production and a small production company (Pertra). Rennemo expects the strategy going forward to be in place by the first quarter of 2004.
At this point he doesn't see the sale of any of those units to be likely.

One thing that he can predict is that massive debt will no longer be part of business as usual at PGS.
"It's quite clear that we need better discipline with respect to capital spending than we've had in the past," he said. Multiclient data, which has weighed down the balance sheet in the past, will still be part of the picture going forward, but Rennemo said it will have to be handled in a different fashion. Ironically, in the second quarter of this year 95% of the marine acquisition activity was proprietary.
"But that's not the right business model long-term," he said.

Unlike many of his peers, Rennemo doesn't view industry consolidation as the answer to the geophysical contracting industry's woes. Rather, each company needs to do its best to create value through new technology and better services.

"PGS is already dedicated to running our company better," he said.
He pointed to better efficiencies through the use of the Ramform vessels as well as better-quality data through high-density acquisition techniques.

"It's not a choice between low-cost efficiency and technology," he said. "You have to master them both. But technology can no longer be supplied for free. Our customers need to recognize this."