UPDATE 1-PGS issues $275 mln shares to expand seismic fleet

Tue Nov 16, 2010 6:06am EST

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* Shares stable around issue price despite falling market

By Wojciech Moskwa and Mikael Holter

OSLO, Nov 16 (Reuters) - Norwegian oil services provider Petroleum Geo-Services (PGS.OL) issued on Tuesday $275 million in shares to expand its fleet, betting on a strong recovery in the market for seismic scans in search of oil and gas.

PGS shares were down 4.2 percent to 82.95 crowns at 0951 GMT after dipping as much as 5 percent. In a sign of confidence in the company, they hovered around the issue price of 83 crowns despite a 1 percent fall on Oslo's .OSEBX index.

PGS's issue comes amidst a sharp rise in demand for offshore oil services following the restart of deepwater drilling in the Gulf of Mexico after BP's (BP.L) well blowout and oil spill.

Transocean (RIG.N), the world's largest offshore rig contractor, and No.2 deepwater drilling group Seadrill (SDRL.OL) have both announced new rig investments in past days as demand picks up. [ID:nN15272493] [ID:nLDE6AA0BL]

"PGS sees that the market has bottomed out and is choosing to expand its fleet," said Ole Andre Hagen, analyst at Fondsfinans.

"I think it's positive although I know that some worry about overcapacity (in the seismic fleet)."

PGS said it would use the proceeds from the issue, which amount to 9.99 percent of its outstanding shares prior to the placement, to build two high-end Ramford-class seismic vessels.

"The purpose of the private placement is to position PGS for future growth," PGS Chief Executive Jon Erik Reinhardsen said.

Some analysts said that the cyclical seismic market would not show much sign of improvement in upcoming quarters and remains oversupplied with new vessels ordered before the-2008 financial crisis and oil price slide.

"There is not much improvement (in the seismic market) expected for the first half of 2011. We assume that there will be a better second half and further improvement in 2012," said Paul Dahl, an analyst at First Securities.

"There is still overcapacity. It is exciting to see how much demand will grow and if it manages to absorb all the capacity ... especially how much the Gulf of Mexico can absorb."

Bouncing soundwaves off the sea bottom, seismic vessels scan for potential oil and gas deposits underneath.

New technology allows high-density scans that give greater certainty about the potential of hydrocarbons or allows producers to closely monitor reservoirs as fields are depleted, curbing drilling risks and allowing greater production. ($1=5.804 Norwegian Crown) (Editing by Jon Loades-Carter)

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