Viridien, a company specializing in geoscience and earth data, reported stable financial results in its third quarter of 2024. CEO Sophie Zurquiyah highlighted a significant 32% revenue increase in the Geoscience segment, reaching $103 million, largely due to improved offshore exploration and efficiency gains.
Despite a drop in Sensing and Monitoring (SMO) revenue, the company's year-to-date revenues remained nearly unchanged at $778 million, with a positive uptick in adjusted EBITDA by 7% to $298 million. Viridien showed a substantial improvement in net cash flow, which rose to $34 million from a negative $15 million in the previous year, and announced plans to refinance debt before March 2026.
Key Takeaways
- Viridien's Geoscience segment saw a 32% revenue increase to $103 million, contributing to stable year-to-date revenues of $778 million.
- Adjusted EBITDA rose by 7% to $298 million, despite a decline in SMO revenue.
- Net cash flow improved significantly to $34 million, up from a negative $15 million the previous year.
- The company is targeting a net cash flow of $100 million for the next year and plans to refinance its debt by March 2026.
- A $37 million penalty related to vessel commitments is expected to improve future cash flow after its expiration in January 2025.
Company Outlook
- Viridien aims to generate $100 million in net cash flow in 2024.
- The company anticipates leveraging new growth debt below $1 billion to deleverage.
- A strong order book in Geoscience and ongoing adaptation in SMO are expected to drive profitability.
- Q4 sales are projected to exceed $100 million, aligning with full-year expectations.
Bearish Highlights
- The Earth Data segment experienced a 22% revenue drop to $83 million.
- Concerns about the UK tax regime were discussed, although the UK is not a major market for the company.
Bullish Highlights
- Viridien reported a strong performance in Geoscience and positive sales dynamics.
- The company is progressing with its $30 million bond buyback program, having repurchased $25 million to date.
- Upcoming bid rounds in Brazil for 2025 could significantly boost revenue if client interest rises.
Misses
- SMO performance was lower this quarter, but new business in SMO accounts for 31% of total revenue.
Q&A Highlights
- The company is shifting vessel capacity sourcing after the contract with Shearwater expires, preferring more flexible procurement options.
- Node-based acquisition methods are gaining interest over traditional streamer methods, with the node market expected to grow in the next 12 months.
- Investments in R&D will continue, focusing on adapting technology for new markets such as geothermal and carbon sequestration.
In summary, Viridien's Q3 2024 financial results demonstrate resilience in a fluctuating macro environment, with strong growth in its Geoscience segment and a solid financial position. The company is focused on maintaining operational efficiency and investing in new business opportunities, particularly in carbon storage and other emerging markets. With a positive outlook for the coming year and strategic plans to improve its financial structure, Viridien (ticker not provided) is poised to strengthen its market position and continue its trajectory of growth.
InvestingPro Insights
Viridien's financial performance, as reported in its Q3 2024 results, aligns with several key metrics and insights from InvestingPro. The company's market capitalization stands at $285.12 million, reflecting its position in the geoscience and earth data industry.
InvestingPro Data shows that Viridien's revenue for the last twelve months as of Q3 2024 was $1,050.1 million, with a gross profit of $223.6 million. This translates to a gross profit margin of 21.29%, indicating the company's ability to maintain profitability despite challenging market conditions. The operating income margin of 9.4% further supports the company's operational efficiency, which was highlighted in the earnings report.
An InvestingPro Tip suggests that Viridien's stock is trading at a low Price to Book ratio of 0.27, which could indicate that the stock is undervalued relative to its assets. This aligns with the company's focus on improving its financial structure and deleveraging efforts mentioned in the earnings call.
Another relevant InvestingPro Tip points out that Viridien has seen strong price performance recently, with a 15% return over the past month. This positive momentum could be attributed to the company's stable financial results and improved net cash flow position reported in Q3.
For investors seeking a more comprehensive analysis, InvestingPro offers additional tips and insights that could provide further context to Viridien's financial health and market position. The InvestingPro product includes a total of 16 additional tips for Viridien, which could be valuable for in-depth investment research.
Full transcript - Viridien SA DRC (CGGYY (OTC:CGGYY)) Q3 2024:
Operator: Good day and thank you for standing by. Welcome to the Viridien Q3 2024 Financial Results Conference Call. [Operator Instructions] Please be advised that today’s conference is being recorded. I would now like to hand the conference over to your speaker today, Jean Baptiste Roussille. Please go ahead.
Jean Baptiste Roussille: Yes, thank you. I’m Jean Baptiste Roussille in charge of Corporate Finance and Investor Relations. As just been said, we are in Paris today with Sophie Zurquiyah, our CEO; and Jerome Serve, our CFO. They will provide an overview of the results as well as comments on our outlook. And following the overview of the quarter, we will be pleased to take your questions, obviously. And now I leave you with Sophie.
Sophie Zurquiyah: Thank you, Jean Baptiste. Welcome, everyone, and thank you for joining the presentation of Viridien’s Q3 2024 financial results. The macro environment remains volatile with oil prices fluctuating due to geopolitical tensions and oversupply. However, our clients have maintained a stable spending pattern within our sector, driven by long-term offshore investments. We’re also seeing a gradual pickup in exploration efforts, particularly among European IOCs, which had previously reduced their spending during the COVID-19 pandemic. These clients continue to prioritize efficiency and cost discipline. Our third quarter has seen another strong growth at Geoscience, which confirms its strength and ability to drive the group’s performance. Earth Data revenue was lower than expected, with some cut-off effects with continued trend of hyper-funding and flat aftersales. Sensing and Monitoring SMO, as anticipated, experienced a low level of activity and a shift in deliveries to Q4. Given our quarterly volatility, we believe that the year-to-date performance is a more accurate indicator of trends and overall performance. Our nine month revenue were nearly flat at $778 million, with Geoscience and Earth Data showing strong growth while Sensing and Monitoring declined. This is in line with our revenue guidance at the beginning of the year. Our nine-month segment adjusted EBITDA increased by 7% year-over-year to $298 million, driven by DDE’s growth, partially offset by SMO’s decline. Net cash flow improved significantly to $34 million, a major improvement from last year. Our focus on cost control and working capital management is starting to yield results. Our performance reflects our focus on high value activities and operational efficiency despite $37 million penalty fee related to vessel commitments, which impacted our EBITDA. I would like to remind you that this contract will expire in early January, which we expect to have a significant positive impact on both EBITDA and cash flow generation. Now going on to Slide 6, let’s review the performance of our segments and businesses. DDE segment revenue was solid at $187 million, quasi stable year-on-year with Geoscience growth balancing Earth Data decline. Despite the less favorable mix, adjusted EBITDA grew 5%, thanks to strong Geoscience performance. Moving on to Slide 7 for Geoscience. For Geoscience specifically, Q3 segment revenue increased 32% to $103 million, in line with Q2 2024, which was the strongest quarter since Q4 2015. Our backlog is continuing to strengthen, driven in part by an increase in average project size. This trend is consistent with the growing number of new offshore field developments that we see, as the offshore cycle unfolds and demand for high end imaging solution increases. Meanwhile, our constant focus on efficiency has yielded further improvements in productivity by leveraging AI and overall workflow output optimization that includes the optimization of our highly specialized HPC infrastructure, algorithms, software, and workload. We have continued to strengthen production per head, demonstrating our commitment to delivering the highest quality results, while maintaining an efficient operation. Looking now at Slide 8 for Geoscience operational highlights. We are pleased to report a significant increase in order intake in Q3, driven in part by strong demand from the Middle East where our cutting-edge technologies are making a tangible impact. Our land data solutions have reached a new level of sophistication, enabling us to accurately image small features and extract reservoir properties that were previously deemed impossible. These breakthroughs not only save our clients millions of dollars in drilling costs and increased success rates, but also substantially reduced safety risk. We’ve had more than 30 years of presence in the region, with our dedicated HPC On-Prem Imaging Center in Oman and our open HPC Cloud Imaging Center in Abu Dhabi. Recently we have expanded our footprint into additional countries, further solidifying our position in the market. The Gulf of Mexico is also gaining attention again, from a growing number of IOCs and independents who are drawn to the region’s vast opportunities for near field exploration and new frontier play. We are well positioned to support these efforts with our advanced imaging solutions. In our new businesses, we have secured new contracts in the mining industry and for carbon storage, bringing our total number of ongoing projects to nine. High quality imaging is essential for carbon storage and we’ve already been able to clearly demonstrate the value of our solutions in this area. In one notable project, our imaging technology helped identify a previously undetected fault, which could have compromised the long-term storage of carbon. This highlights the critical role that our expertise plays in ensuring the viability, safety, and efficacy of carbon storage operations. Turning onto Slide 9 for Earth Data. Earth Data segment revenue of $83 million was down 22% compared to last year. However, looking at year-to-date numbers, revenue was up 8%, driven by higher pre-funding revenue. Our after sales for the quarter came in at $26 million, impacted by a significant deal that was delayed to Q4, and has now been booked. On a year-over-year basis, after sales trends have been relatively flat, reflected limited bid rounds and our clients continued cautious and disciplined approach. Meanwhile, multi-client CapEx increased to $83 million driven by the ramp up of our Laconia project in the Gulf of Mexico, where we saw good progress on securing prefunding during the quarter, ahead of our original plan. Turning to Slide 10 for EDA operational highlights. Our Laconia project is progressing well with 40% of the acquisition already complete. In Brazil, our Viridien Data covers all 14 blocks that are proposed for 2025 pre-salt bid round. With its improved terms and conditions including the removal of drilling commitments, and our coverage, we are positioned very well to capitalize on this opportunity. In Norway, we successfully completed the acquisition of our latest survey, further expanding our coverage in the region. This marks the 11th consecutive year we acquired data in the North Viking Graben area, resulting in a comprehensive and high-quality data set that has facilitated dozens of discoveries. Building on this success, we introduced no data to complement our streamer data, which when combined with our high-end imaging can provide greater detail in complex areas. We see strong industry support for these programs. Notably, our data coverage also includes blocks designated for carbon storage, positioning us well to drive new revenue growth in this emerging business area. We’re actively pursuing opportunities in carbon storage with two well-funded reimaging projects underway in the North Sea and screening studies completed in the Gulf of Mexico and Asia. Turning now to Slide 11 on Sensing and Monitoring. Our Q3 SMO segment revenue was $59 million, a decline from the unusually strong Q3 2023 that saw high sales for large surveys in North Africa and Middle East. As communicated earlier, we expect to see quarter-to-quarter volatility in SMO, mainly based on large crude activity, and we’re confident that Q4 will be strong, driven in part by orders that were delayed from Q3. We were quite encouraged to see SMO’s adjusted EBITDA remain positive this quarter, as this reflects the early benefits of our adaptation plan and cost reduction efforts. Going forward SMO will be well positioned for improved profitability through the cycles. Going on to Slide 12 for the SMO operational highlights. Our third quarter revenue was primarily driven by land systems and a notable contribution from our new businesses. Although the quarter was weaker than expected, it was largely due to the significant shift in deliveries to the fourth quarter. We did see several deliveries during the quarter, including WiNG land nodes to Europe and the U.S., both for our traditional market and for geothermal application, the 508XT systems and Nomad vibrators to South Asia, and the ongoing deployment of our TPS low frequency broadband source in the Gulf of Mexico. The SMO adaptation plan remains on track to achieve expected cost reductions and operational flexibility. We have completed the rightsizing of our industrial facilities in Houston and Singapore, and we’ve initiated a restructuring plan in France. We’re also making good progress on optimizing our working capital. Our new businesses in SMO continue to grow and show promise, accounting for 17% of SMO revenue year-to-date, up from 11% in 2023. We made several deliveries of our S-scan geotechnical monitoring solutions with application in mines in Africa and railways in Middle East. Additionally, our Marlin Solution for port logistics management was successfully deployed in Latin America. Going forward, SMO should be well positioned both for growth and improved profitability through the cycle. Let me now hand the floor out to Jerome for comments on our financials.
Jerome Serve: Thank you, Sophie. Good morning and good afternoon, ladies and gentlemen. As Sophie talked in details about Q3, for each segment, I will focus on the nine-month performance. Let’s start with the P&L on Slide 14. Although our nine-month revenues are 3% down versus last year at $778 million, the EBITDA is up 7%, reaching close to $300 million. This is driven by a quite different business mix versus last year. SMO revenues are indeed down 31% over the first nine months, impacted by the absence of mega crudes like we had in 2023. On the opposite, DDE revenues were up 16%, mainly coming from a very strong performance of our Geoscience. Two points worth highlighting at this stage. First, on the SMO side, given the order intake we see today, we expect Q4 revenues higher than those in the first three quarters. Also, and despite a very low Q3 at $60 million revenues, the business did remain EBITDA breakeven, showing the first benefits of our transportation plan. Second point on EDA where the business was still negatively impacted by $36 million of penalty fees from our vessel commitments with Shearwater. This figure will grow again during Q4 to reach a higher level than last year. Unfortunately January 2025 will mark the end of this contract. Moving down to the P&L, our adjusted segment operating income for the nine months was $84 million, down 32%. Although EBITDA was up 7%, this is mainly explained by the fact that in Q2 last year we did record a positive $37 million net book value adjustment following the completion of three multi-client surveys, and we did not have such one-off this year. Finally, our group net income ended up at $32 million for the nine months. Moving on to the group cash flow on Slide 15, our net cash flow for the nine months reached $34 million while it was negative $15 million last year, over the same period. This is driven by a higher EBITDA as well as positive variation in working capital management mainly coming from SMO. Indeed in 2023, we had the buildup of receivable linked to the Saudi mega crude, while in 2024 further inventory tightening initiated as part of the transformation plan. Regarding the increase in CapEx, as indicated during our Q2 results, this is due to the Laconia Project in the Gulf of Mexico, but is balanced by the settlement we struck with ONGC earlier this year. Before I go to the balance sheet on Slide 16, I would like to update you on the $30 million bond buyback program that we announced back in March. The good news is that we are now almost completed, with $25 million repurchased as of today, out of which only $11 million are showing by end of Q3. Also, it’s worth noting that the bond prices have drastically improved over the last 12 months, coming from below 90 to close to par these days, demonstrating the confidence of the credit market in our business, and our ability to refinance close to current conditions. Regarding our liquidity, as of September 24, it stood at $442 million and our gross debt after IFRS 16 was at $1.345 billion. The resulting net debt after IFRS 16 was still close to $1 billion. On the financial roadmap, Slide 17, I’m pleased to report that we continue to tick the boxes one after the others, with the tightening of our working capital resulting in a minimum cash required to run the business of less than $100 million, an improved credit rating outside the CCC zone, a successful extension of our RCF with a better balance between commercial and investment banks, and the $30 million bond buyback I was referring to earlier on. The next milestone is then the $100 million net cash flow generation target for next year, which we see no reason to adjust considering this year achievements and current outlook. In this context, we remain confident in our objective to refinance our debt most likely in 2025, but in any case before March 2026. As previously mentioned, we’ll take the opportunity of this refi, to use our cash and start deleveraging the group by raising a new growth debt below $1 billion. I’m now handing back the floor to Sophie.
Sophie Zurquiyah: Thank you, Jerome. As a summary, I can say that this quarter highlights the progress that we have made along a strategic roadmap, which is focused on technology leadership, new businesses growth, and cash flow generation. I am particularly pleased with Geoscience’s performance, which is leveraging its clear differentiation with best-in-class imaging technology and specialized HPC computing power, to achieve a record high order book. In Earth Data, our projects are attracting good prefunding, and we’re well positioned to benefit from upcoming lease rounds, and carbon storage market development. We expect SMO will continue to experience market volatility, mainly based on the timing and activity of very large seismic crudes. Our adaptation plan is progressing well, which will ensure profitability through the cycles and volatility will be further attenuated by the growth of our new businesses outside oil and gas. Going forward, we expect to see progressively strengthening performance in SMO. Overall, 2024 is tracking our expectations, and we’re in good position to meet our 2024 financial objectives. Our technology leadership, new business expansion, and financial discipline bring us confidence for 2025 and beyond. Thank you. And I now look forward to taking your questions.
Operator: Thank you. [Operator Instructions] We will take our first question and the first question comes from the line of Kevin Roger from Kepler Cheuvreux. Please go ahead, your line is open.
Kevin Roger: Yes. Good evening. Thanks for taking the question. I have three if I may. The first one is on Laconia. You mentioned during the remarks that the prefunding on the project has relatively well progressed this quarter, and maybe a bit ahead of the expectation. So can you give us some color where we stand now in terms of percentage for the prefunding of the survey for this one, please? And the second one, if we focus on the late sales, late sales remained quite very low this quarter and year-to-date we are still below $100 million. I was wondering if you can provide a bit of color on what you expect for Q4, what you see in terms of commercial opportunities, et cetera, because maybe this is where the risks are related to the full year guidance to get a very strong Q4 late sales. And the last one, maybe just a technical one on Sercel previous quarter, you mentioned the restructuring charges between the EBITDA, adjusted EBITDA did we saw anything this quarter in terms of restructuring charges at Sercel, please?
Sophie Zurquiyah: Yes. Good evening, Kevin and thanks for your question. On Laconia, typically we do not disclose the ramp up of prefunding project-by-project. But knowing that Laconia is a big chunk of our Q3 spend, you kind of get an idea. But in general, why we’re saying that we’re ahead of the game or in the preponderance of Laconia is that we plan for when clients come in. There was a client that we were planning for next year that’s come in earlier, so which is going to bring cash forward. But we’re still tracking to our cash sort of breakeven point by the end of next year, which is actually quite an achievement, compared to the historical way we ramp up the project. And this one, we played it particularly safe, because it’s such a large project. But you do see if you look at the numbers, the impact of Laconia on the Q3 number, and you’ll see them on the Q4 number, but we’re tracking really well. So that’s for Laconia. On the late sales, it’s a fair point. It’s better to look at the year-to-date numbers. It gives you a better view and it’s kind of flattish. But directionally, when we planned for the year, we thought, okay, this is kind of going to be more or less flat, from last year with some transfer fees that we didn’t have last year. So we do feel reasonably comfortable with our Q4 numbers. Now, of course, as you know, it’s never done until the last days of December. But we – and we did mention in the Q3 numbers there was a deal already that kind of shifted into Q4, which is kind of derisking a little bit of after sales of Q4. So compared to perhaps a year ago, we have better identified deals to go after. It doesn’t mean that we’ll close all these deals, but we’ll feel like we’re a little – we have more visibility than we would normally, we’ve had in the last few years, if that helps you. And the third question is, I’ll leave it to Jerome.
Jerome Serve: Yes, so in terms of restructuring provision for Sercel, the one which show in our books only relates to Singapore and the Houston land-sizing and is quite limited at this stage, $3 million to $4 million. You don’t see it in the adjusted. I mean, you see the adjusted very close to the normal EBITDA because you have some one-off, positive one-off, which offsets this provision. Regarding the restructuring plan in France, given it’s not a PSU, but a voluntary redundancy plan. We don’t, I mean we have a view on who will go, but to be able to provision we need to have the exact name, and then I suspect by end of Q4 we should be able to provision. In terms of amount, we should be in the range that I already provided in Q2, below $15 million, I would say.
Kevin Roger: Okay. Very clear. Thanks a lot.
Sophie Zurquiyah: Thank you.
Operator: Thank you. We will take our next question. And the question comes from the line of Mick Pickup from Barclays (LON:BARC). Please go ahead, your line is open.
Mick Pickup: Good evening. Sorry, Sophie, I don’t want you to give guidance for next year, but I think there’s been a bit of panic around this quarter with oil prices coming back, and some commentators worried that we’ve seen the end of the cycle. And not so much for you, but for some of your peers. I think there’s numbers appearing in consensus, where investments down next year are really down quite sharply on the multi-client side. So can you just say what’s been happening with your clients, what they’re saying about. You’re still talking about a gradual pickup in exploration. Just wondering what you’re still seeing, and whether you think there’s any big step change in what you’re likely to invest next year?
Sophie Zurquiyah: Yes. So, thank you. Hi, Mick. The short answer is we’re not seeing any inflection in the client’s behavior in our space. Arguably our space has been sort of the latest to pick up, and this is a reason why it’s because it’s kind of longer term view, and everybody agrees that the longer term view is that there needs to be activity in preparing for increasing production down the road, right. Because the decline needs to be compensated by new reserves, and those reserves have to be found. And to find those new reserves you need what we do. So the short answer is we’re not seeing much of a difference. The oil price is still at a very comfortable level, let’s call it above $70. We know our clients breakeven point is around that $30 barrel and they can comfortably at that level of oil price, pay dividends and invest in capital investment. And if you look at the difference between onshore/offshore, you see that there’s a long-term offshore cycle unfolding. And I think it will continue, the momentum is there, it will continue unfolding. Now at the margin, clients can always shift a little bit instead of let’s say increasing by five, maybe they go four or six. You might some of that happening. But I do think that certainly all our clients that we’re talking to, they’re gearing up for increasing their exploration efforts. And when I ask them why is it not translating yet necessarily more sales, from our side in multi-client data, which would be a good indicator. But usually the response is that it just takes time to reshape the teams to get the machine back in motion.
Mick Pickup: Perfect. And then just – I think you may have answered it. I think in your commentary there was a slippage in late sales from 3Q to 4Q and a slippage in SMO as well. What’s just causing these slippages? Is it just general inertia in the system still?
Sophie Zurquiyah: In multi-client, I think it’s just the deal…
Jerome Serve: On the late sales, it’s really a cut-off issue. The deal was signed in the 3rd of October, so could that be booked in Q3? We’re talking $15 million plus deal. It would have changed the picture on our after sales. For SMO it’s more – it’s not a cut-off. It’s more the delivery, which will happen during the course of Q4. With Q4 that at least we see much stronger than what we’ve seen in Q3 reaching $100 million plus. So on par with the expectation we have for example for the full year. And about big unexpected events, we were pretty comfortable with the delivery of this Q4 for SMO.
Mick Pickup: Okay. Perfect. Thank you.
Sophie Zurquiyah: Thank you.
Operator: Thank you. We will take our next question. And the question comes from the line of Guillaume Delaby from Bernstein. Please go ahead, your line is open.
Guillaume Delaby: Yes. Good afternoon, Sophie and Jerome. Three quick questions, if I may. The first one, I’m going to come back to Mick’s question on late sales in Q4. In addition, what is, I would say you’re feeling as of today regarding Q4 sales, late sales in Q4. Second question. You mentioned Sophie that your library is very well suited for, I think you mentioned five bid rounds in Brazil. Could you maybe try to quantify this potential opportunity? And the third question is very different. I think your Chairman of the Board, Philippe Salle has been appointed as CEO of Atos. So is it reasonable to assume that a change of Chairman in the coming weeks or coming months? Thank you.
Sophie Zurquiyah: Okay. Thank you, Guillaume. Good evening and thanks for the questions. In terms of after sales I did mention, right, we have at this point in time we have a bit more visibility than we normally have. Of course it’s hard to predict the client’s behavior at the end of the year. The one thing that has dragged, does not help the aftersales has been the lack of bid rounds, and visible bid rounds. Now we have the Brazil one I mentioned, which is planned for 2025, and usually clients would want to buy the data ahead of the bid rounds. So that would maybe could be driving some sales in Q4. But in general, I would say we feel equal better than last year. And if you remember last year there wasn’t really such a spike for Q4. So, I do feel like we have more visibility on the Q4 deal. In terms of the library in Brazil. There is a bid round – enough bid round in the pre-salt area, and the pre-salt area is where we have the majority of our Brazil data library. And there’s a number of large blocks that are going to be available, and they’re pretty large. So selling data. So it depends really in terms of the size of the prize, each one client buying data on one block could be quite significant. So it depends on how many clients are going to go after it really. It’s hard to say, but it could be quite significant if there is increasing interest, there’s more clients interested. And in terms of the third point, of course this is something that’s being reviewed by a Board. It’s a bit early to give you an answer, but there’s certainly something. We’re considering the different options, and what we’re privileging in the options is the continuity. So you’ll be hearing more in December.
Guillaume Delaby: Okay. Thank you very much, Sophie. Very clear.
Operator: Thank you. We will take our next question. Your next question comes from the line of [indiscernible] from Arctic Securities. Please go ahead, your line is open.
Unidentified Analyst: Thank you. Good evening. You mentioned that there were not really any meaningful transfer fees hitting your numbers this quarter. But there are a couple of pending transactions among the companies that are expected to be closed over the next several quarters. So I was just wondering, is any of those involving transfer fees that would be meaningful to your late sales?
Sophie Zurquiyah: Hi, Luke and thank you for your question. So I don’t think I said there were no transfer fees, because there’s been some transfer fees, but not all of it. So as you mentioned, right, there are more transactions that are pending and actually I’m thinking about two. One that’s going to happen this year and another that as it quite publicly is moving into next year and those could be significant for us. One, we know is happening and the other one we’ll see if it does happen. And as always there might be more surprises on the way.
Jerome Serve: And I think what we said in Q2, which is last year close to zero transfer fee and in 2022 with a big website, BHP transfer fee of 55. I mean this year will be somewhere in the middle and that’s our expectation.
Unidentified Analyst: Okay, okay. Thank you. And then obviously you mentioned Brazil and there are some potential opportunities there with regard to the licensing rounds. But if you go around the other basins, can you sort of pinpoint where you expect there would be increased interest over the next six to 12 months? Because this year has been relatively quiet.
Sophie Zurquiyah: Well, actually we have three core basins. So we have Brazil, we have Norway and we have Gulf of Mexico. Norway has always, as you know been very active, even through the downturn and COVID times. And we continue to see Norway as remaining very active. It really sustained us this year and will continue moving forward. The Gulf of Mexico remains an important area with clients. Actually I was mentioning that more and more clients, a broader range of clients being interested in the Gulf of Mexico. If you remember, there was a stage in, which a number of them exited, because they thought it was risky, it required high CapEx. And now we’re seeing actually a number of clients come back to that, to the Gulf of Mexico, which offers generally good conditions of investment. So I think, we’ll continue to see good interest in the Gulf of Mexico. And of course we mentioned that Laconia will continue to attract funding. Now we are looking at positioning in other regions of the world, which are of interest for our clients. So, we’ve invested in the past in Suriname, so we hope to see continued activity in Suriname. We’re trying to position in Guyana. Guyana, there’s a sort of upcoming potential opportunity. We’re looking at Uruguay. Uruguay is the conjugate of Namibia on the other side of the Atlantic margin. And so that is attracting interest. We have discussion on the other side in Africa. We have discussion right now in Malaysia. So there’s a number of select basins in which our clients are interested, and we are looking at making investments, partnering maybe with some of our partners to look at. So it should be continued – we should continue to see activities and as you see, the prefunding and the new project is relatively dynamic and I think that trend will continue, because clients are looking for new data.
Unidentified Analyst: Okay. And then just finally with the vessel capacity agreement with Shearwater expiring in early next year, what are your thoughts on how you’re going to source vessel capacity going forward?
Sophie Zurquiyah: It’s a good question. First of all, we’re very pleased that this is ending, and as we’ve highlighted the numbers, it would be a good weight coming out of our financials. We have considered different options moving forward. Right now we think there is still overcapacity on the market, and we don’t believe it would be very difficult to procure a vessel on sort of the open market. But we’ve considered different maybe model under, which we would partner. But by no means we would want to enter an onerous contract that we in the similar way that we had in the past. So we’ll enjoy I think some freedom from vessels. We do see the market shifting from nodes, into – from vessel streamer into nodes. So we want to have the freedom to invest our CapEx into more of the nodes side. If you look at the basins, Gulf of Mexico is pretty much a nodes market. Brazil still has streamer opportunity in the new frontier basins of Brazil, but presold eventually is going to move into nodes. Norway is not far from going into nodes. So you’ll still have of course the more frontier area, perhaps like I was mentioning. Malaysia, Suriname, arguably Guyana might be moving to nodes, as well as it’s becoming more mature. So I don’t know if it’s a good thing to try and lock ourselves into a vessel streamer commitment.
Unidentified Analyst: So your sort of big picture view is the OBN market growing faster than the streamer market over the next 12 months?
Sophie Zurquiyah: Yes, if you look at growth, it is certainly and will continue to grow much faster as it is starting to be – nodes are starting to be utilized in exploration. In the past nodes were contained only for production purposes on small areas. Now for example, with the example of Gulf of Mexico, the sparse nodes are being used for exploration purposes with excellent results. And as that continues to deliver value, you’ll see more and more shifting towards nodes. Of course the streamer offers a very cost effective, and efficient way to acquire lots of data in new areas. So I think you will continue to have its space. But and today, if you look at the amount of square kilometers acquired with streamers versus nodes, it’s probably just simply talking about 10x more. So there’s still a lot more streamer data acquired than nodes data. But one is going down the streamer data and the other one is going up fast.
Unidentified Analyst: Okay, that’s interesting. And if you sort of – in general, if you sort of were to compare a project – an exploration project, where you deploy nodes as opposed to streamers, I know it would vary a lot, but what would you say in general would be the typical cost difference between those two approaches?
Sophie Zurquiyah: So this in order to be able to look at the price difference, you have to look at the node density, which is what affects the node cost. So the Gulf of Mexico, for example, which is a sparse node, so let’s say maybe a few kilometers apart, then you’d be talking about similar cost to a wide azimuth. Wide azimuth is when you have two vessels to streamer vessel. So that would be sort of equivalent just to give you a range. But actually it is becoming cost effective in those complex subsurface areas, which have productive reservoirs.
Unidentified Analyst: Okay, interesting. Thank you very much.
Operator: Thank you. [Operator Instructions] We will take our next question. Your next question comes from the line of Baptiste Lebacq from Oddo-BHF. Please go ahead, your line is open.
Baptiste Lebacq: Yes, sir. Good evening, everybody. Thanks for your time. Three questions from my side. The first one is related to the new UK tax regime. What could be the impact for you if there is? Second one is dedicated to SMO and the fact that new businesses is increasing. Will you need one-time in the future to put, let’s say, specific CapEx for these type of products versus let’s say standard products for oil and gas? And the third one is the depletion rate. Speaking with your clients, do you see some change regarding the depletion rate? Thanks a lot.
Sophie Zurquiyah: Okay. Thank you, Baptiste and good evening. I’ll take question two, three, while giving time to Jerome to look at question one. But in terms of new business for SMO that is growing, and they’re continuing to grow every year. Now what makes them as a percentage of the total higher is actually the core best parts of SMO’s was lower this quarter. So that’s why we ended up with this 31%. But the new businesses that we’re looking for in sensing and monitoring were more in the service side. So we don’t expect that there will be very capital intensive. But if your question is do you need new products and technology? Definitely we do and we’ve already made that investment. So we’ll continue to carve out parts of our say R&D budget but I would expect it’s going to be a small portion of it, specifically to continue adapting our solutions for those markets. And for example we have some of our equipment direct applications. So for example the sensors that we use for oil and gas, you can use them for geothermal, they’re the same, you can use them for carbon sequestration. So some of them is exactly the same equipment if you want or the same systems, others are going to be different. We packaged already solutions for the infrastructure monitoring. So that’s kind of done. Of course we’ll continue evolving the solution, but that will be low investment. Then we have some defense solution, which are, again very close to our core technology who would expect very little investment. So in general I don’t think you should expect a large investment, particularly visible or large investment on the SMO side to continue growing that market. The effort will be more on the sort of the business development side trying to land partnerships.
Baptiste Lebacq: Thank you.
Jerome Serve: Back to your first question on the UK tax regime. First, the UK is not the biggest region for us. I mean looking at either late sales or Geoscience or SMO and it’s true that all the tax – the recent tax policies in the UK has been quite unfriendly for oil and gas. So not favoring very much in comparison with Norway for example. But I think the budget from yesterday, from what I read was less worse than what people were thinking. And there is still this allowance for CapEx, which everybody was fearing that they will be removed and it’s not so. But I mean that’s really a peculiarity. But overall for the region UK – the UK overall the impact on the UK change regime is very minimal.
Sophie Zurquiyah: I agree with that. And the third question on depletion rates, we are not hearing anything different. So similar depletion rate single-digit depends on the company’s 5%, 7%. Of course depletion rates in unconventional North America are going to be much higher. But I think we’re still on there and actually if anything the clients are looking to bring in technologies to combat that. The natural, I would say similar, 5% to 7% overall. Yes, 5% to 7% overall on average.
Baptiste Lebacq: Thank you very much.
Operator: There seems to be no further questions at this time. I will hand back for closing remarks.
Sophie Zurquiyah: Well, great. Thank you very much. Appreciate the questions, and I look forward to engaging with you in the upcoming weeks on one-to-ones and with investors. So thank you very much for your attention.
Jerome Serve: Thank you indeed. Thank you.
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