Norway's PGS warns of margin shortfall

By John Acher

OSLO (Reuters) - Margins at Norwegian seismic surveyor Petroleum Geo-Services will fall short of expectations this year as its vessels spent longer than forecast in dry dock, the group said on Wednesday, hitting its shares.

Fourth-quarter productive time for its vessels and related margins and revenue in the marine contract segment have been lower than forecast in its third-quarter report, PGS said in a statement.

Steaming, stays in shipyards and standby time for its vessels in the fourth quarter are expected to account for around 31 percent of total capacity, above previous guidance of 22 to 25 percent, PGS said.

Two of the group's Ramform seismic vessels spent longer than expected in dockyards and one experienced a delay in obtaining an operating permit, PGS said.

"The company expects the 2007 full-year marine contract (earnings before interest and tax) margin to be marginally below 50 percent," PGS said.

PGS (PGS.OL) shares traded down 7.6 percent at 139.50 crowns by 1103 GMT, after touching a three-month low of 137.75 crowns, valuing the company at about $4.5 billion. The Oslo bourse benchmark index .OSEBX fell 0.8 percent.

"They held a capital markets day (for investors) at the end of November, so something must have gone really wrong in December," said Fearnley Fonds analyst Kjell Erik Eilertsen. "This is probably a one-off, but it has quite a powerful impact."

ORDER BACKLOG

But PGS said several recent contracts awarded "at terms well above 2007 levels" reinforced its expectations of a strong 2008 and lifted the combined backlog of orders for the marine and onshore business to a record of about $950 million.

Relocations of vessels carried out in the fourth quarter are expected to benefit fleet utilization and the number of active production days in the first part of 2008, it said.

PGS earlier said it expects marine contract EBIT margins to rise to 55 percent in 2008 and Chief Financial Officer Gottfred Langseth told Reuters the guidance for next year remains unchanged.

"We have got big contracts in India and the activity in the North Sea is high," he said.

The company also said it had agreed to provide additional services, including vessel operation, for the Ramform Victory which it has agreed to sell to Japan's Ministry of Economy, Trade and Industry. It did not give financial details of the service deal.

Delivery of the vessel to the Japanese buyer is expected to take place in January and PGS expects to realize the gain from the sale in the first quarter instead of in the fourth quarter, as earlier disclosed, the company said.

The 50 percent advance payment on the vessel is still expected to be received by year end, it added.

(Additional reporting by Joergen Frich and Richard Solem; Editing by Will Waterman and David Holmes)