SUCCESS STORIES - TGS

Finding value amid the gulf of mexico oil spill

TGS Nopec Geophysical

Investment thesis

Gulf of Mexico oil spill disaster was a short term problem for TGS but our view was that it would not have a long term adverse impact

Situation

In the wake of the Deepwater Horizon oil spill in the Gulf of Mexico, we conducted a search for a company that had overly sold off in the wake of that crisis, but with no liability risk. Following our detailed search, we identified and purchased TGS-Nopec Geophysical Co ASA (TGS), which provides multi-client seismic data to exploration and production companies in the oil & gas indus- try. Although TGS had no involvement in the Deepwater Horizon accident and would suffer no long term impact on the company’s long term potential, its share price declined significantly in conjunction with the entire sector.

High quality business

TGS’s library of seismic data is akin to a local monopoly. Once TGS has data for an area, there is no incentive for competitors to re-survey the same area, nor is it economic for customers to do the preliminary seismic survey themselves as it is cheaper and easier to licence the data from TGS.

Mispriced

In short, TGS was a very uniquely positioned business with a solid balance sheet (holding $300m in cash and no net debt at the time of purchase). It is a rare event when businesses with such economics can be purchased as cheaply as 7 times net earnings.