Fugro N.V. and CGGVeritas have signed an agreement under which CGGVeritas will acquire Fugro’s Geoscience division, excluding the multi client library and Ocean Bottom Nodes business, for a total of €1.2 billion.
The transaction is a result of Fugro’s review of all options regarding its marine streamer seismic data acquisition business and associated activities, as announced on 30 May 2012. This divestment allows Fugro to exit the capital intensive and volatile seismic segment of the oil and gas exploration market, where it does not have a leading market position. Also, most seismic companies have indicated fleet expansion plans in the immediate future, creating an opportunity for Fugro to enter into this transaction.
The divestment is consistent with Fugro’s strategy to build strong market positions and a broad, cohesive service portfolio. It will also allow the company to maintain a balance of its services across the exploration, development and production phases of the oil and gas industry. With a much stronger balance sheet, Fugro will continue to focus on growth opportunities in its core, market-leading geotechnical and survey businesses.
As part of the transaction, Fugro and CGGVeritas will form three strategic partnerships: the creation of a Seabed Geophysics joint venture, a non-exclusive sales agreement for Fugro’s existing multi client library and a global strategic technological and commercial partnership.
Seabed Geophysics joint venture
This joint venture will include Fugro’s and CGGVeritas’s ocean bottom nodes businesses and CGGVeritas’s transition zone, ocean bottom cable and permanent reservoir monitoring activities. Fugro will make a cash payment of €225 million to CGGVeritas in order to achieve a 60% controlling interest in the joint venture. The revenue in the first year of operation is expected to reach around €400 million, excluding capacity expansion. By combining the strengths of both companies, the Seabed Geophysics joint venture will have an immediate market leading position in seabed geophysical activities, and will benefit from a good synergy with Fugro’s subsea activities.
The formation of the Seabed Geophysics joint venture supports a more balanced services portfolio by increasing exposure to the extended production phase period in the lifecycle of oil and gas fields, which is typically characterised by stable, long-term service contracts.
Multi client library
The multi client library, with a book value at 30 June 2012 of €427 million, will remain with Fugro. Revenues will benefit, through a non-exclusive sales and marketing agreement, operated by CGGVeritas, from the larger combined global sales force and broad range of client contacts. All multi client personnel will be transferred to CGGVeritas. Fugro will retain the right to enter into non-exclusive agreements, as well as an outright sale of (all or parts of) the library to other parties. This provides Fugro with maximum flexibility to unlock the value of its library. Fugro will not further invest in the seismic multi client library.
The partnership includes a global technical and commercial agreement, under which CGGVeritas and Fugro grant each other preferred supplier status for selected products and services required for the operation of their respective businesses. Parties will also pursue opportunities related to the launch of new technologies. The partnership will provide revenue enhancing opportunities to both Fugro and CGGVeritas.
The purchase price of €1.2 billion will be paid in cash to Fugro. CGGVeritas intends to finance the transaction via a bridge loan (two-thirds of the consideration) committed by its banking group and a rights issue (one-third of the consideration). In the event market circumstances do not allow execution of the rights issue prior to closing, a vendor loan of €335 million with a maximum maturity of three years and supported by a collateral arrangement, will be issued to CGGVeritas by Fugro.
The transaction involves the transfer of approximately 2500 well qualified Fugro employees located around the world. CGGVeritas has agreed to honour all existing labour rights and agreements. Fugro will undertake appropriate consultation procedures with employee representatives.
Timing and conditions
The final purchase price is subject to working capital and other standard post-closing adjustments. The transaction is expected to close towards year end 2012 and is subject to antitrust and customary closing conditions.
Business going forward
The geotechnical division investigates the engineering properties and geological characteristics of soils and rocks, advises on foundation design, provides construction materials testing, pavement assessment and installation support services supporting clients’ projects worldwide in onshore, near shore and offshore environments, including deep water oil and gas developments. Growth opportunities exist in geographical expansion, capital assets and technology enhancement.
The survey division provides a range of services in support of the oil and gas industry, renewables, commercial and civil industries, as well as governments and other organisations. It encompasses numerous offshore, subsea and geospatial activities, as well as global positioning systems. The transaction enables further capacity expansion to support future investment levels in the oil and gas sector.
The Seabed Geophysics joint venture is expected to become a market leader in the growing seabed geophysical data acquisition market as oil companies increase their focus on maximising production from mature and developed fields.
The Fugro multi client library holds a repository of 2D and 3D non-exclusive seismic data, predominantly in Australia, the Gulf of Mexico and North West Europe, including the Barents Sea.
Adapted from press release by Callum O’Reilly
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