CGG Open to Technip Partnership After Spurning Takeover Approach

Viking Vision seismic survey vessel, image: CGG

By Tara Patel

(Bloomberg) — CGG SA Chief Executive Officer Jean-Georges Malcor said he would welcome a commercial partnership deal for seismic oil surveys with Technip SA, after spurning a takeover approach from the French oil-services provider four months ago.

“We are open to an offer for a long-term services contract to carry out geoscience studies for Technip,” Malcor said in an interview in Paris on Thursday.

CGG, which reported a net loss of $1.2 billion in 2014 after shrinking the size of its fleet amid a slump in crude prices, said a deal with Technip could be modeled on the one it has with Baker Hugues Inc. for using its seismic technology to locate production “sweet spots” in shale reservoirs.

CGG has lost more than half its market value in the past year as oil majors including Total SA slash spending on exploration, hurting demand for the Paris-based company’s studies of hydrocarbon reserves designed to help make discoveries. Malcor said there haven’t been any talks with Technip since Europe’s second-biggest oil-services provider abandoned a plan in December to make an offer for CGG.

No other suitors have come forward and CGG is “not in play,” Malcor said. CGG pledged last month to shrink its fleet to 11 specially equipped vessels from 18 at the end of 2013, and will cut another 400 jobs this year after 1,150 people left in 2014.

“There is no blue sky in the budget,” Malcor said. “If there is a rebound it would be great news, but we’re not counting on it.”

Spending Decline

CGG warned last month that spending by oil companies on geoscience may drop by a fifth in 2015. The figure “could be less, but the company could even live with a bit more,” Malcor said.

Sanctions against Russia have stopped exploration in the Arctic where CGG carried out Kara Sea seismic studies for Exxon Mobil Corp. and OAO Rosneft, Malcor said. The corruption scandal at Petroleo Brasileiro SA has also hurt the company because the granting of permits has slowed.

Of CGG’s three divisions, the only one losing money is so-called acquisitions, which operates the fleet of vessels that drag equipment to measure sound waves in search of underwater oil and gas deposits.

The acquisitions unit was the point of contention that sunk the prospective takeover deal because Technip didn’t want the business, while Malcor maintains it’s key to giving customers confidence in the way seismic data is collected. CGG clients want guarantees on the quality and integrity of data because it can be reprocessed years later to extract more refined images about oil reservoirs, he said.

Big Decisions

“Oil companies make billion-dollar decisions on seismic images,” he said. “We are not against the creation of a big oil-services company, but it has to make sense from an industrial point of view.”

With a stake in both CGG and Technip, the French government has been seen as key in determining whether a deal could be reached. It holds 18 percent of CGG’s voting rights through the state-run BPI fund and IFP Energies Nouvelles. BPI owns 5.2 percent of Technip.

The two companies don’t have overlapping businesses, with Technip making pipes and building platforms and other infrastructure, while CGG uses powerful computers to survey oil and gas reservoirs. Without CGG, Technip may begin developing its own seismic activities to broaden its service offering, CEO Thierry Pilenko has said.

“I wish him good luck,” said Malcor, noting that CGG holds valuable patents that it’s careful to protect.

Copyright 2015 Bloomberg.