TGS: An Oil Data Service Provider Geared And Ready For A Cyclical Upswing
- TGS is an asset light company with a strong balance sheet, which has protected it during the bust of the investment cycle in the oil exploration industry.
- Counter-cyclical capital expenditures means that the company’s data library is fresh and up-to-date for the potential recovery.
- Many competitors are either in default or near default, which could lead to market share gains for TGS Nopec.
- Investment activity will pick up at oil prices in the range of $50-$60 and above.
- The normalized P/E of TGS Nopec is ~11x.
TGS Nopec Geophysical ASA is a Norwegian oil data provider that is the result of a merger with U.S.-based TGS and Norwegian Nopec in the year 1998. The company’s main product is refined data covering land or sea-based oil reserves (the latter being the main focus), which it sells to customers involved in oil exploration. Oil companies have two alternatives for obtaining data from TGS. Customers can either directly contract TGS, which in turn acquires the data, performs the post-processing and then transfers the right of ownership to the client.
This model is more expensive for the customer, as they pay the full price for the job performed by TGS and in addition they have to store and maintain a database. Alternatively, they can opt for a multi-client solution, in which the company finances a fraction of the total project costs upfront. The total investment is thus smaller, but the customers do not get full ownership of the acquired data. Ownership is retained at TGS, which then sells this same data to other interested parties.
TGS Nopec is specialized in the second alternative, the so-called multi-client business model, as it allows the company to generate more return on investment by selling the same data to multiple customers. Only 3% of the total revenue is derived from the proprietary model; the rest is multi-client data. The company employs a strict ROI discipline in its multi-client investment projects, by following the stated goal to only undertake projects that are able to earn a sales return of 2 to 2.5 times’ investment.