Q3 2016v2 - Magseis Fairfield · Q3 2016 Dicksvei 10B, N-1366 Lysaker NORWAY, Phone: +47 23 36 80 20. HIGHLIGHTS ... sion from G1 to G2 technology and a re-evaluation of the extent

Magseis ASAThird quarter and first nine months

Q32016

Dicksvei 10B, N-1366 Lysaker NORWAY, Phone: +47 23 36 80 20

HIGHLIGHTS

• Completed mobilisation to Red Sea and started production together with BGP on Saudi Aramco’s S-78 project

• Production progressing according to plan

• Revenue of USD 13.1 million (resulting from two months of production only) compared to USD 12.8 million in 2015, where USD 4.2 million was related to Multi-client revenues

• EBITDA of USD 3.0 million compared to USD 4.3 million in 2015

• Impairment of asset values of USD 6.7 million primarily related to the conversion from G1 to G2 seismic node technology

• EBIT of USD -7.0 million compared to USD -0.01 million in 2015

• Net Income of USD -8.8 million compared to USD -0.3 million in 2015

• Draw-down of USD 9 million of debt finance from Export Credit Norway and Innovation Norway during Q3 2016

2

Revenue

20

15

10

5

-

EBITDA

4.00

2.00

-

-2.00

-4.00

-6.00USD

mill

ion

USD

mill

ion

Q4 Q1 Q2 Q32015 2016 2016 2016

Q4 Q1 Q2 Q32015 2016 2016 2016

Third quarter 2016

Magseis ASA - For the period ended 30 September 2016

This quarter was a busy period for our Artemis Athene crew working on Saudi Aramco’s S78 project in the Red Sea. The cooperation with our partner BGP is progressing well with the two crews working in a coordinated manner to ensure a safe and efficient multi-vessel operation. Production performance to date is according to the project plan –an achievement for a survey of this size and complexity.

The survey location is considered one of the most challenging areas for seismic operations world- wide. The seabed topography is extreme with depths varying from 0 to more than 1000 metres water depth and com-prising several smaller islands. We were awarded the project following a careful evaluation of the results of our 2015 pilot survey, which demon-strated that we are one of very few seismic companies with the required equipment to operate safely and efficiently in this area. I recently had the opportunity to visit the operation in Saudi Arabia and was truly impressed with the efforts that our crew and our partner are making to deliver a stellar product in a challenging environment in a safe and timely manner. The data we are collecting are of very high quality and Saudi Aramco is very pleased with the results so far.

The operational experience we have gained during the past three years with efficient operation of large spreads with 3,500-4,000 nodes and up to 350 km of cable in challenging environments combined with the successful

3

Idar Horstad - CEO Magseis

CEO STATEMENTS

development of new deployment techniques and further enhancement of our MASS nodes have convinced me that we are ready to take the next step in our Company’s

development.

Staying true to our strategy, the introduction of additional crews will be based on further visibility on securing backlog and the access to financing. Depending on the type of crew and our stock of long-lead items, we can be operational just 6 months after the decision to launch the next crew. As part of our sales efforts, we track the OBS market closely and, based on the tender activity level over the past six months; our confidence in a rapid recovery for 2017 is strong.

At the same time, we are taking a prudent approach to our balance sheet values and are record-ing a USD 6.7 million

impairment this quarter, which primarily relates to the value assigned to our G1 technology. The shift to the new G2 technology has proven very successful and has surpassed our expectations. Therefore we have decid-ed to convert the remainder of our seismic nodes to G2 technology and, as a consequence, have had to record an impairment on the G1 components that have been replaced.

Our main focus in Q4 will be to continue the good operational performance in the Red Sea, and thus, secure further projects in the region while actively pursuing the range of other opportunities we currently see in the OBS market.


KEY FINANCIALSIn thousands of USD

Profit and loss Q3 2016 Q3 2015 YTD 2016 YTD 2015 2015Revenues 13 094 12 814 38 881 35 136 40 671

Cost of sales 7 660 6 145 27 928 22 909 31 427

EBITDA 2 993 4 255 2 973 3 929 -2 347

EBIT -6 975 -84 -13 009 -4 857 -15 637

Net profit -8 841 -331 -16 754 -5 289 -16 510

Basic earnings per share -0.23 -0.01 -0.44 -0.19 -0.58 Financial positionTotal assets 87 213 79 165 72 830

Total liabilities 38 304 14 481 19 169

Total equity 48 909 64 684 53 661

Equity ratio 56.1% 81.7% 73.7% Cash flowNet cash flow from operating activities -10 754 -1 048 -3 625

4


5

Revenue Revenue for the third quarter was USD 13.1 million. All revenue was related to the Aramco survey, which started with first shot in late July. Prior to said start-up, the vessel was transiting to and on a planned yard stay. In comparison, the revenues for the third quarter of 2015 came in at USD 12.8 million, where USD 4.2 million was related to multi-client revenues. Further, the revenue for the first nine months was USD 38.9 million compared to USD 35.1 million in the first nine months of 2015, where multi-client revenues was USD 1.9 million in 2016 and USD 4.7 million in 2015.

Operational costs Cost of sales in the quarter was USD 7.7 million compared to USD 6.1 million in the third quarter of 2015. The increase of cost is primarily due to the vessel in full operation as well as previously incurred mobilisation and yard stay costs being amortised in the P&L compared to last year when the vessel was working on multi-client survey during the quarter and cost being capitalised in the Multi-client library.

In the first nine months of 2016, the cost of sales amounted to USD 27.9 million compared to USD 22.9 million during the same period in 2015. The increase

reflects continuous operations for two vessels during 2016 until mid-May compared to a one-vessel operation and a period of reduced time-charter hire as a consequence of the capacity upgrade last year.

Selling, general and administration expenses (SG&A) and other expenses in the third quarter amounted to USD 2.2 million compared to USD 2.4 million in the same period in 2015. SG&A and other expenses have increased gradually along with the growing offshore organisation; a weaker NOK has offset some of the underlying cost increase as the figures are in USD.

In the first nine months of 2016 SG&A and other expenses amounted to USD 6.6 million compared to USD 6.9 million during the same period of 2015.

In this challenging industry environment the Company is continually working to reduce the operational cost base through negotiations with sub-suppliers and ensuring that the Company’s marine operations and onshore support is being run efficiently. At the same time, the Company needs to maintain a sound operational platform to be able to conduct increasingly complex projects in a safe manner, and also, retain resources to capitalise on imminent and future growth opportunities.

Operational Comments 16th July marked the arrival of the Artemis Athene in Sau-di Arabia after a safe passage from Singapore and lengthy preparations to get ready for the challenges ahead.Following a swift inward clearance and mobilisation for Saudi Aramco/BGP, cable deployment commenced after a two-day equipment verification test. The first cable de-ployed on July 21st,with first shot fired before the end of the month. Through, close cooperation with our partner,BGP, the challenging seabed topography has turned out to be man-ageable, and the Magseis cable handling system with its robust construction is performing well and in accordance with expectation. Despite the increased wear and tear introduced by the special seabed conditions, the overall acquisition is progressing well with an average production rate in line with plans and models.While our vessel, the Artemis Athene is doing all node

and cable handling in water depths below 20 metres, BGP through their experienced shallow water and transition zone crews, handle and deploy our nodes where the water is less than 20 metres deep. So far, the coordination be-tween the two crews has been successful and our aim is to deliver the S-78 3D OBS Sha’ur Pilot Survey to the client on time. During the quarter we also performed the first full scale test of the deep-water node deployer that has been de-veloped in close cooperation with Shell. The field test in Sognefjorden was very successful and demonstrated the potential for accurate and high-speed deployment of nodes in great water depths giving Magseis a competitive advantage in this field.

BOARD OF DIRECTORS REPORTFinancial review


6

Research and development Research and development (R&D) expenses progresses as planned, and was USD 0.3 for the third quarter million compared to USD 0.01 million in the third quarter of 2015. R&D for the first nine months of 2016 was USD 1.4 million, in line with the first nine months of 2015 of USD 1.4 million.

Depreciation Depreciation was USD 3.1 million in the third quarter compared to depreciation of USD 2.2 million in the third quarter of 2015. The depreciation compared to last year has increased due to more equipment in operation. In the first nine months of 2016 depreciation was USD 7.7 million compared to USD 6.4 million during the same period of 2015. Amortisation Third quarter amortisation of USD 0.1 million was related to other intangible assets only. This compares to USD 2.1 million for the same period in 2015 were the amortisation was related to both the Multi-client library and other intangible assets.

For the first nine months of 2016 USD 1.3 million was amortisation, where amortisation of multi-client library was USD 0.9 million, compared to USD 2.4 for the same period in 2015 where amortisation of multi-client library was USD 2.0 million.

Impairment Third quarter impairment of USD 6.7 million was mainly related to a write-off of value for the G1 nodes, compared to zero impairment for the same period in 2015. This has been the result of a quicker-than expected conver-sion from G1 to G2 technology and a re-evaluation of the extent to which replaced G1 components can be reused.

For the first nine months of 2016 USD 7.0 million was impairment, where the main part was write-off of residual value for the G1 nodes, compared to zero for the same period in 2015.

EBITDA and EBIT The EBITDA was USD 3.0 million in the third quarter compared to USD 4.3 million the third quarter of 2015. EBITDA was generated by contract revenue from end of July only this quarter compared to full quarter operational activity last year with exclusive and multi-client projects. EBIT was USD -7.0 million in the third quarter compared

to USD -0.01 million in the same period in 2015. The decrease in EBIT relates to the same factors as the decrease in EBITDA, in addition to an impairment of USD 6.7 million mainly related to G1 nodes.

EBITDA in the first nine months of 2016 was USD 3.0 million compared to USD 3.9 million for the same period of 2015. EBIT was USD -13.0 million in the first nine months of 2016, largely reflecting the above mentioned impairments, compared to USD -4.9 million during the comparable periods of 2015.

Balance Sheet and Cash Flow As of 30 September 2016, the Group’s equity was USD 48.9 million compared to USD 64.9 million at 30 September 2015. The equity ratio was 56.1% as of end September 2016. Tangibles and intangible assets amounted to USD 50.2 million as of 30 September 2016 compared to USD 51.8 million at the same date in 2015. The investments reflect seismic equipment onboard Artemis Athene as well as capitalisation of expenses related to research and development projects per September 2016.

As of 30 September 2016, the net value of multi-client library is zero due to amortisation of USD 0.9 million in the first quarter. Corresponding valuation of the Multi-client library was USD 1.4 million a year ago. As of 30 September 2016, current assets amounted to USD 37.1 million compared to USD 27.4 million as of 30 September 2015. Cash and cash equivalents is USD 13.5 million compared to USD 18.5 million as of 30 September 2015.

Non-current liabilities increased to USD 14.5 million as of 30 September 2016 from USD 5.0 million at the same date in 2015. This is mainly related to debt financing from Export Credit Norway and Innovasjon Norge totalling USD 9.1 million. In addition, funding of USD 4.7 million was received from Shell Global Solutions related to the cooperation agreement for development of a deep-water solution for seismic operations. This funding is recognised as a finance arrangement in the financial statements. Current portion of long-term debt of USD 2.2 million as of September 2016. Current liabilities as of 30 September 2016 amounted to USD 23.8 million compared to USD 9.5 million as of 30 September 2015. The increase is mainly due to in-


crease in trade payables of USD 3.1 million, driven by the operations for the Saudi Aramco Red Sea project. Furthermore, USD 8.3 million in pre-funding from BGP in short-term loan to assist in the financing of required investments for the same project. In addition, an increase of USD 1.7 million in accruals and USD 2.2 million current portion of long-term debt has been recorded. Cash flow from operating activities was USD -10.8 million in the first nine months of 2016 compared to USD -1.0 million in the same period of 2015. Mobilisation and yard-stay with upgrades of seismic equipment during the period effected the operational cash flow negatively. The net cash outflow from investing activities amounted to USD -16.2 million in the first nine months of 2016 compared to USD -10.0 million in the same period of 2015

when the investment activity of seismic equipment was at a lower level. Cash flow from finance activities was USD 29.0 million in the first nine months of 2016 compared to USD 8.0 in the same period of 2015. The proceed are related to the cooperation agreement with Shell Global Solutions, the pre-funding agreement with BGP and loans from Export Credit Norway and Innovasjon Norge, in addition to proceeds from share capital issuing, offset by instalments and paid interest relating to the finance lease.

Employees As of 30 September 2016 Magseis had a total of 81 full-time employees (30 September 2015: 77) including the offshore seismic crew of 43 employees (30 September 2015: 42).

7


20 LARGEST SHAREHOLDERS 30 SEPTEMBER 2016 Shareholder HoldingsWESTCON GROUP AS 5 328 103 14.1 %

ANFAR INVEST AS 4 315 684 11.4 %

GEO INNOVA AS 3 905 050 10.3 %

CLIPPER A/S 2 158 409 5.7 %

VPF NORDEA KAPITAL 1 683 887 4.5 %

BARRUS CAPITAL AS 1 625 685 4.3 %

J.P. MORGAN CHASE BANK N.A. LONDON 1 501 947 4.0 %

VERDIPAPIRFONDET PARETO INVESTMENT 1 447 721 3.8 %

OP-EUROPE EQUITY FUND 1 254 249 3.3 %

VPF NORDEA AVKASTNING 1 089 312 2.9 %

REDBACK AS 1 000 000 2.6 %

EUROCLEAR BANK N.V. 988 092 2.6 %

VERDIPAPIRFONDET KLP AKSJENORGE 939 615 2.5 %

GNEIS AS 924 825 2.4 %

INVESCO PERP EUR SMALL COMP FD 638 048 1.7 %

KOMMUNAL LANDSPENSJONSKASSE 623 780 1.6 %

MP PENSJON PK 595 075 1.6 %

STOREBRAND VEKST 575 257 1.5 %

COSIMO AS 417 000 1.1 %

STOREBRAND NORGE I 416 992 1.1 %

Total 20 largest shareholders 31 428 731 83.1 %

Other shareholders 6 389 283 16.9 %

Total outstanding shareholders 37 818 014 100 %

8


9

Board of Directors of Magseis ASA, Lysaker, 11 November 2016

We confirm, to the best of our knowledge, that the condensed consolidated interim financial statements for the period 1 January to 30 September 2016 have been prepared in accordance with current applicable accounting standards and IAS 34 Interim Financial Reporting, and gives a true and fair view of the assets, liabilities, financial position and results of the Group. We also confirm to the best of our knowledge that the condensed consolidated interim financial statements present a fairly view of the development and performance of the business during the period, and together with the 2015 Annual Report a description of the principal risks and uncertainties facing the Group.

STATEMENT OF FINANCIAL COMPLIANCE

Outlook Production is now well underway in the Red Sea and, despite the challenging operational conditions, the combined BGP and Magseis crew are performing according to plan. During the fourth quarter of 2016 we expect to be in continuous production.

Tender activity is significantly higher during the same period last year which supports our view that the OBS market will return to growth during 2017. The Company is awaiting feedback on several important tenders in the weeks and months to come, which may provide the foundation for further growth.

Engineering work is ongoing to optimize the layout of our next cable vessel. The new node deployer and ROV assisted deployments are also well under way to give Magseis the opportunity to offer a wide range of options well suited for a variety of different survey designs. We are also developing and strengthening our organisation to prepare for the next stage in our development.

During the quarter Jan Pihl Grimnes was elected interim Chairman of the Board following the resignation of Mari Thjømøe. The Board would like to take the opportunity to thank Mari for her valuable contribution to the Company’s development and extend a warm welcome to Jan as our new Chairman.

Jan P. Grimnes, Chairman

Jan Gateman, Director and Senior Vice President

Idar Horstad Chief Executive Officer

Bettina R. Bachmann, Non-executive Director

Jan M. Drange, Non-executive Director


10

CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

In thousands of USD NoteQ3

2016(unaudited)

YTD 2016

(unaudited)

Q32015

(unaudited)

YTD2015

(unaudited)

Full year2015

(audited)

REVENUE AND OTHER INCOME

Revenue 4 13 094 38 881 12 814 35 136 40 671

Total revenue and other income 13 094 38 881 12 814 35 136 40 671

OPERATING EXPENSES

Cost of sales 7 660 27 928 6 145 22 909 31 427

Research and development expenses 268 1 362 31 1 422 2 056

Selling, general and administrative costs 1 909 5 576 1 953 5 508 7 569

Other expenses 264 1 041 430 1 367 1 966

Depreciation and amortisation 5 3 087 7 658 2 193 6 374 9 193

Amortisation 6,7 133 1 276 2 148 2 377 3 978

Impairment 5 6 748 7 047 0 35 119

Total operating expenses 20 070 51 889 12 900 39 992 56 308

OPERATING PROFIT (LOSS) -6 975 -13 009 -86 -4 856 -15 637

FINANCIAL INCOME AND EXPENSES

Finance income 736 1 195 18 250 283

Finance costs -1 162 -2 215 -265 -438 - 717

Net finance costs -426 -1 020 -247 -188 - 434

NET PROFIT (LOSS) BEFORE TAX -7 401 -14 029 -333 -5 044 -16 071

Income tax expense 1 440 2 725 0 245 439

NET PROFIT (LOSS) -8 841 -16 754 -333 -5 289 -16 510

Basic earnings (loss) per share -0.23 -0.44 -0.01 -0.19 -0.57

Diluted earnings (loss) per share -0.23 -0.44 -0.01 -0.19 -0.57

OTHER COMPREHENSIVE INCOME

Currency exchange differences 0 0 0 0 0

Total comprehensive income (loss) for the period, attributable to Owners of the Company -8 841 -16 754 -333 -5 289 -16 510


11

CONDENSED CONSOLIDATED BALANCE SHEET

In thousands of USD NoteYTD 2016

(unaudited)YTD 2015

(unaudited)YE 2015(audited)

ASSETS

Non-current assets

Equipment 5 44 672 48 181 47 346

Multi-client library 6 0 1 352 877

Other intangible assets 7 5 481 2 222 3 543

Total non-current assets 50 153 51 755 51 766

Current assets

Cash and cash equivalents 13 471 18 505 11 435

Trade receivables 12 909 1 171 2 693

Other current assets 10 679 7 734 6 936

Total current assets 37 060 27 410 21 064

TOTAL ASSETS 87 213 79 165 72 830

EQUITY AND LIABILITIES

Shareholders' equity

Share capital 8 303 254 254

Share premium 8 102 594 90 944 90 945

Other equity 2 933 2 495 2 630

Retained earnings -51 798 -23 886 -35 045

Currency translation reserve -5 124 -5 123 -5 123

Total equity attributable to equity holders of the Company 48 909 64 684 53 661

TOTAL EQUITY 48 909 64 684 53 661

LIABILITIES

Non-current liabilities

Obligation under finance lease 10 1 197 2 113 1 891

Other non-current financial liabilities 13 293 2 840 4 402

Total non-current liabilities 14 490 4 953 6 293

Current liabilities

Trade payables 6 976 3 847 7 607

Current tax payable 189 24 212

Short-term debt and current portion of long-term debt 10 10 885 826 848

Other current liabilities 5 764 4 831 4 209

Total current liabilities 23 814 9 528 12 876

TOTAL LIABILITIES 38 304 14 481 19 169

TOTAL EQUITY AND LIABILITIES 87 213 79 165 72 830


CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

In thousands of USD Share

capital

Share premium

reserve

Share based

payments reserve

Retained earnings

Currency trans-lation

reserve Total

Balance at 1 January 2015 237 83 774 2 039 -18 517 -5 123 62 410

Profit / (loss) for the period 0 0 0 -5 289 0 -5 289

Other comprehensive income 0 0 0 0 0 0

Total comprehensive income for the period 0 0 0 -5 289 0 -5 289

Share issuance 17 7 452 0 0 0 7 469

Expenses related to share issuance 0 -282 0 0 0 -282

Fair value adjustment currency forward contract 0 0 0 -80 0 -80Share-based payments (options) 0 0 456 0 0 456

Balance at 30 September 2015 254 90 944 2 495 -23 886 -5 123 64 684

Balance at 1 January 2016 254 90 945 2 630 -35 045 -5 124 53 660

Profit / (loss) for the period 0 0 0 -16 754 0 -16 754

Other comprehensive income 0 0 0 0 0 0

Total comprehensive income for the period 0 0 0 -16 754 0 -16 754

Share issuance 49 12 134 0 0 0 12 183

Expenses related to share issuance 0 -485 0 0 0 -485

Share-based payments (options) 0 0 303 0 0 303

Balance at 30 September 2016 303 102 594 2 933 -51 799 -5 124 48 908

12


CONDENSED CONSOLIDATED STATEMENT OF CASH FLOW

In thousands of USD NoteQ3 2016

(unaudited)YTD 2016

(unaudited)Q3 2015

(unaudited)YTD 2015

(unaudited)2015

(audited) CASH FLOWS FROM OPERATING ACTIVITIES

Profit / (Loss) before tax -7 401 -14 029 -331 -5 044 -16 071

Adjustment for:

Income tax paid 0 -37 0 -245 -245

Deferred lease discount amortisation -119 -352 -109 -341 -460

Depreciation and amortisation 5,6, 7 3 220 8 934 2 307 6 718 13 171

Impairment 5 6 748 7 047 0 35 119

Gain on currency forward contract recognised in profit and loss 0 0 -75 -80 0Fair value adjustment convertible loan 0 0 80 0 0

Share based payments expense 78 303 129 456 591

Interest expense 540 899 192 438 595

Interest income 2 -7 -18 -42 -49

Working capital adjustments:

(Increase) / decrease in current assets -9 351 -14 416 9 609 3 224 2 487

Increase / (decrease) in trade and other payables and accruals -534 901 -3 080 -6 167 -3 763

-9 885 -13 515 6 528 -2 943 -1 276

Net cash from operating activities -6 819 -10 755 8 703 -1 048 -3 625

Cash flows from investing activities

Interest received 1 7 18 42 49

Acquisition of equipment 5 -3 656 -13 835 -1 478 -8 100 -10 133

Payments for capitalised development and intangibles 7 -1 797 -2 338 -627 -627 -1 389Multi-client investment 6 0 0 -1 352 -1 352 -4 383

Net cash used in investing activities -5 451 -16 165 -3 439 -10 037 -15 856

Cash flows from financing activities

Proceeds from loan 9 534 18 784 1 813 1 813 3 310

Payment of finance lease obligation -216 -627 -194 -563 -761

Proceeds from issue of share capital 0 12 183 0 7 469 7 469

Expenses related to issue of share capital 109 -485 0 -282 -281

Interest paid -540 -899 -192 -438 -412

Net cash from financing activities 8 886 28 956 1 427 7 999 9 325

Net change in cash and cash equivalents -3 384 2 036 6 691 -3 086 -10 156

Cash and cash equivalents at 1 January 16 855 11 435 11 814 21 591 21 591

Net foreign exchange difference 0 0 0 0 0

Cash and cash equivalents at period end 13 471 13 471 18 505 18 505 11 435

13


NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

1. Reporting entity Magseis ASA is a public limited liability company listed on Oslo Axess and incorporated in Bærum, Norway. The address of the Company’s registered office is Dicks Vei 10b, 1366 Lysaker. These condensed consolidated interim financial statements comprise Magseis ASA (referred to as the “Company”) and its subsidiaries (together referred to as “Magseis” or the “Group”). The Group is primarily involved in marine seismic operations and seismic related activities.

2.1 Basis of preparation(a) Statement of compliance The condensed consolidated interim financial statements have been prepared in accordance with International Accounting Standard IAS 34 “Interim Financial Reporting” as issued by the International Accounting Standards Board (IASB) and adopted by the European Union (EU).The condensed consolidated interim financial statements does not include all the information and disclosures required in the annual financial statements, and should be read in conjunction with the annual financial statements as of 31 December 2015.

The condensed consolidated interim financial statements were authorised for issue by the Board of Directors on 11 November 2016.

(b) Basis of measurement The condensed consolidated interim financial statements have been prepared on the historical cost basis except for financial instruments at fair value, which are recorded through the profit and loss.

(c) Going concern The condensed consolidated interim financial statements have been prepared on the going concern basis.

(d) Functional and presentation currency The Group’s functional and presentation currency has been United States Dollars (USD). All financial information is presented in USD and has been rounded to the nearest thousand unless otherwise stated.

(e) Alternative Performance Measures (“APMs”) The European Securities and Markets Authority (ESMA) issued guidelines on Alternative Performance Measures (“APMs”) that came into force on 3 July 2016. The Company has defined and explained the purpose of the following APMs;

EBITDA EBITDA means Earnings before interest, taxes, amortisation, depreciation and impairments. Magseis has included EBITDA as a supplemental disclosure because management believes that the measure provides useful information regarding the Company’s ability to service debt and to fund capital expenditures and provides a helpful measure for comparing its operating performance with that of other companies.

EBIT (Operating Profit) Earnings before interest and tax is an important measure for Magseis as it provides an indication of the profitability of the operating activities. The EBIT margin presented is defined as EBIT (Operating Profit) divided by net revenues.

Backlog Backlog is defined as the total value of future revenue from signed customer contracts. Management believes that the

14


15

backlog figure is a useful measure in that it provides an indication of the amount of customer backlog and committed activity in the coming periods. 2.2 Basis for consolidation The condensed consolidated interim financial statements comprise the financial statements of the Company and its subsidiaries as of 30 September 2016. Subsidiaries are entities controlled by the Group. Control is achieved when the Group is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. Intra-group balances and transactions, and any unrealised income and expense arising from intra-group transactions, are eliminated.

2.3 Significantaccountingjudgements,estimatesandassumptions The preparation of the Group’s financial statements requires management to make judgements, estimates and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities, and the accompanying disclosures, and the disclosure of contingent liabilities. Uncertainty about these assumptions and estimates could result in outcomes that require a material adjustment to the carrying amount of assets or liabilities affected in future periods. The accounting judgements, estimates and assumptions used to prepare the condensed consolidated interim financial statements are the same as those used to prepare the 2015 annual financial statements.

2.4 Summaryofsignificantaccountingpolicies The accounting principles used to prepare the condensed consolidated interim financial statements are the same as those used to prepare the 2015 annual financial statements. There are no new standards effective in 2016 that have had a significant impact to the Group’s financial statements.

3. Operating segments The Group is operating in one segment being geophysical surveys with respect to products and services. Accordingly, all significant operating decisions are based upon analysis of the Group as one segment. The financial results from this segment are equivalent to the financial statements of the Group as a whole.

4. Revenue

In thousands of USD Q3

2016Q3

2015YTD

2016YTD

2015Revenue and other income

Contract revenue 13 094 8 571 37 035 30 458Multi-client revenue 0 4 243 1 845 4 678Other revenues 0 0 0 0Total revenue and other income 13 094 12 814 38 881 35 136


EQUIPMENT

In thousands of USDOffice

machinesSeismic

equipment

Seismic equipment

under finance lease

Under construction Total

Cost

Balance at 1 January 2015 306 34 676 4 063 16 161 55 207

Asset completed and ready for intended use 0 10 520 0 -10 520 0

Additions 64 376 0 7 805 8 244

Disposals 0 0 0 0 0

Impairment 0 -51 0 0 -51

Adjustment currency conversion 0 0 0 0 0

Balance at 30 September 2015 370 45 521 4 063 13 446 63 400

Balance at 1 January 2016 391 56 131 4 063 4 712 65 297

Asset completed and ready for intended use 0 9 503 0 -9 503 0

Additions 24 1 322 0 12 370 12 937

Disposals 0 0 0 0 0

Impairment 0 -15 943 0 -983 -16 114

Balance at 30 September 2016 415 51 013 4 063 6 596 62 087

Depreciation and impairment losses

Balance at 1 January 2015 170 7 708 983 0 8 861

Depreciation for the year 62 5 720 591 0 6 373

Disposals 0 0 0 0 0

Impairment 0 -16 0 0 -16

Adjustment currency conversion 0 0 0 0 0

Balance at 30 September 2015 232 13 412 1 574 0 15 218

Balance at 1 January 2016 252 15 929 1 769 0 17 951

Depreciation for the year 64 8 689 590 0 9 343

Disposals 0 0 0 0 0

Impairment 0 -9 879 0 0 -9 846

Balance at 30 September 2016 316 14 739 2 359 0 17 415

Carrying amounts

at 1 January 2015 136 26 968 3 080 16 155 46 339

at 30 September 2015 138 32 109 2 489 13 446 48 182

at 1 January 2016 139 40 202 2 294 4 712 47 346

at 30 September 2016 98 36 274 1 704 6 596 44 672

Depreciation of the year 64 8 689 590 0 9 343

Depreciation capitalised and deferred - net 0 -1 685 0 0 -1 685

Depreciation charged to expense at 30 June 2016 64 7 004 590 0 7 658

16

5. Equipment


17

Useful life of equipmentUseful life of seismic equipment and office machines are 3-7 years.

CapitalisationIn the first nine months of 2016 Magseis has not capitalised costs relating to the development of the seismic equipment (2015: USD 1.4 million).

ImpairmentMagseis has during the first nine months of 2016 recorded an impairment of USD 6 748 thousands (2015: USD 35 thou-sands).

6. Multi-client library MULTI-CLIENT LIBRARYIn thousands of USD YTD 2016 YTD 2015Cost

Balance at 1 January 4 383 3 385

Additions 0 0Disposals 0 0Balance at 30 September 4 383 3 385

Amortisation

Balance at 1 January 3 506 0

Amortisation for the year 877 2 033

Disposals 0 0

Impairment 0 0

Balance at 30 September 4 383 2 033

Carrying amounts

at 1 January 877 3 385

Balance at 30 September 0 1 352


18

7. Other intangible assets OTHER INTANGIBLE ASSETSIn thousands of USD YTD 2016 YTD 2015Cost

Balance at 1 January 4 588 2 513

Additions 2 338 627Disposals 0 0Adjustment currency conversion 0 0


Amortisation

Balance at 1 January 1 045 574

Amortisation for the year 399 344

Disposals 0 0

Adjustment currency conversion 0 0

Balance at 30 September 1 444 918

Carrying amounts

at 1 January 3 543 1 939


Development costsCapitalisation of USD 2.3 million in 2016 and USD 0.6 million was capitalised in 2015.


19

No dividends were paid during the period ended 30 September 2016 (2015: USD 0).

SHARE CAPITAL ISSUED

Number of shares

Share capital USD ‘000

Share premium reserve

USD ‘000Ordinary shares - Issued and fully paid

At 1 January 2015 27 162 561 237 83 774

11 June 2015 Private placement of 2,655,453 shares at NOK 22 per share 2 655 453 17 7 451Capital raising costs 0 0 -282

At 30 Sept.2015 29 818 014 254 90 944

Ordinary shares - Issued and fully paid

At 1 January 2016 29 818 014 254 90 945

6 May 2016 Private placement of 6,800,000 shares at NOK 12,50 per share 6 800 000 42 10 345Capital raising costs 0 0 -397

30 May 2016 1 200 000 7 1 789

Capital raising costs 0 0 -88

At 30 Sept.2015 37 818 014 303 102 595

8. Share capital and reserves The shares of Magseis are listed on Oslo Axess.


20

RELATED PARTIES TRANSACTIONS AND OUTSTANDING BALANCES:In thousands of USD Transaction value Balance outstanding

Name Transactions Note30 Sept.

201630 Sept.

201530 Sept.

201630 Sept.

2015J B Gateman Consultant costs (I) 127 132 127 51N Matre/Westcon Group Leases (II) 14 991 12 687 3 223 1 575

N Matre/Westcon Group Other services 0 1 717 0 7Total 15 117 14 536 3 350 1 633

(I) J B Gateman is engaged as an independent consultant as Senior Vice President.

(II) Relates to time charters (TC) for one vessel and a sale and leaseback arrangement. As part of the TC agreement for Artemis Athene, Westcon Group also delivers Marine Management services. As at 30 September 2016 the remaining time charter lease term is 2 years and 3 months and the sale and leaseback is 2 years and 2 months.

10. LeasesOperating leases The TC agreement with Westcon Group (related party) is classified as an operating lease. The table below sets out the future minimum lease payments of the arrangement based on full day rates; FUTURE MINIMUM LEASE PAYMENTS OPERATING LEASESIn thousands of USD 30 September 2016 30 September 2015Less than one year 17 117 17 202

Between one and five years 21 709 38 634

More than five years 0 0

Total 38 827 55 836

Senior unsecured loanOn 18 December 2015, shareholders and board member Anders Farestveit and Jan Gateman provided Magseis with a senior unsecured loan with a principal of NOK 4.0 million (approx. USD 450 thousands). The loan was paid back including interest in June 2016.

9. Related partiesKey management personnel and director transactions A number of key management persons and board members, or their related parties, hold positions in other entities that result in them having control or significant influence over the financial or operating policies of those entities. A number of these entities transacted with the Group in the reporting period. The terms and conditions of the transactions with management persons, board members and their related parties were no more favourable than those available, or which might reasonably be expected to be available, on similar transactions to non-key management personnel related entities on an arm’s length basis. The aggregate value of transactions and outstanding balances related to key management personal, board members and entities over which they have control or significant influence were as follows:


Dicksvei 10B, N-1366 Lysaker NORWAY, Phone: +47 23 36 80 20

11. Capital commitments Future minimum commitments relating to equipment are as follows: CAPITAL COMMITMENTSIn thousands of USD 30 September 2016 30 September 2015Contracted but not yet provided for and payable:

Within one year 4 068 7 485

One year later and no later than five years 0 0

Later than five years 0 0

Total 4 068 7 485

21

FUTURE MINIMUM LEASE PAYMENTS FINANCE LEASES

30 September 2016 30 September 2015

In thousands of USD

Future minimum lease payments

Present value of minimum lease payments

Future minimum lease payments

Present value of minimum lease payments

Less than one year 1 098 978 1 098 1 039

Between one and five years 1 275 1 135 2 373 1 902

More than five years 0 0 0 0

Total minimum lease payments 2 373 2 113 3 471 2 941

Less amounts representing finance charges 260 0 531 0

Present value of minimum lease payments 2 113 2 113 2 940 2 941

Refer to note 9 Related parties for further information about leases with related parties.

Finance lease The sale & leaseback agreement with Westcon Group (related party) is treated as finance lease.Future minimum lease payments under the finance lease together with the present value of the net minimum lease payments are as follows:


Documents

Q3 2016v2 - Magseis Fairfield · Q3 2016 Dicksvei 10B, N-1366 Lysaker NORWAY, Phone: +47 23 36 80 20. HIGHLIGHTS ... sion from G1 to G2 technology and a re-evaluation of the extent