If you are considering buying or selling CGG shares, there are several factors to consider. CGG is a company specialising in geophysical services for the oil and gas industry. It provides seismic imaging, geoscience, reservoir and monitoring services to clients around the world. CGG's performance is often correlated with fluctuations in the oil and gas market, which can lead to share price volatility. Investors should also consider the company's competition in the market, as well as its technological innovations and growth strategies. In this article, we look at the key factors to consider before making a decision to buy or sell CGG shares.
The level of investment by oil and gas companies is of course an important point to watch. However, these investments also depend to a large extent on the oil price and its evolution. It will therefore also be necessary to closely monitor this data on the energy commodities market.
Of course, we will also have to monitor the impact of the recent strategic plan developed by CGG and called the Transformation Plan, which essentially aims to reduce the fleet from 11 to 5 vessels, increase redundancies, sell off non-strategic assets and concentrate efforts on geophysics, geology and reservoirs with the GGR subsidiary.
Similarly, the commercial and economic benefits of CGG's recent large-scale imaging project in the Gulf of Mexico will need to be monitored closely.
Of the other major issues facing CGG, the reduction of its debt level is probably one of the most important. Any announcements, communications or official publications regarding this issue will therefore be of the utmost importance.
Before we look at the economic environment of the CGG company with its competitors and partners, let's take a few moments to recall what its businesses are and what its concrete activities are. Indeed, the CGG group is a French company that provides services and products to the oil industry. More specifically, the group is one of the world's leading providers of geophysical services and products to oil and gas companies around the world.
But to go further and better understand the activities of this group and how they generate revenue, it is possible to divide these activities into two distinct major divisions according to the share of revenue they represent and in this way:
First of all, geophysical services represent the major part of the CGG Group's activities, since they generate no less than 73.7% of the company's total revenues. These services include the recording, processing and interpretation of land and marine seismic data on behalf of major oil companies.
The remaining 26.3% of the CGG Group's revenues are generated by seismic equipment manufacturing activities. This includes recording and transmission equipment, seismic data acquisition vibrators, data processing or interpretation software and other such products that are then sold to the oil and gas industry.
From a geographical point of view, CGG's activities are of course worldwide. The largest share of the company's revenues is generated in the Europe, Africa and Middle East region, which accounts for 37.4% of sales. This is followed by North America with 20.5 percent of revenues, Latin America with 22.4 percent of revenues, and Asia-Pacific with 19.7 percent of revenues. To date, the group employs more than 5,000 people worldwide.
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CGG is now one of the world's leading providers of oil and gas products and services. As such, its competitors are few and far between, given the high barriers to entry and the inability of smaller companies to penetrate this highly technological and equipment-intensive field. However and if the competition is not numerous, it remains very dangerous on behalf of the two other large actors of this sector which threaten the market shares of this French company. We propose you to discover here who are the two main enemies of CGG that you must also analyze in order to better understand the stakes and this stock.
first of all, it is one of the largest in this sector. However, it specializes in project management, engineering and construction for the oil, gas and wind industries, but also in other activities such as chemicals. Its scope of action is therefore broader than that of CGG. TechnipFMC owns a fleet of vessels for the installation of pipelines and the construction of subsea infrastructures, which has enabled it to become the world leader in offshore and onshore infrastructures. The company, which is also listed on the Euronext stock exchange, has an international presence and offers its services in more than 48 different countries. Recently, it became TechnipFMC following its merger with the American company FMC Technologies which was another competitor of CGG.
Finally, the second major competitor to CGG is another French company, Schlumberger, which specializes in oilfield services and equipment. It offers these services and products worldwide with a presence in about 100 different countries and offices on different continents. With a payroll of over 100,000 employees worldwide, Schlumberger is also a publicly traded company both on the Euronext Paris market and on the NYSE.
We can also mention here the Saipem group which is specialized in the field of engineering and construction services for the oil and gas industries and whose activities mainly concern engineering, construction and installation services offshore and onshore but which also offers drilling services.
In order to gain a foothold in the coveted oil and gas services market, the French group CGG has developed an effective strategy of partnerships and strategic alliances with other companies, whether they are in similar or different businesses to its own. It is very interesting to understand how these alliances can influence CGG's share price by studying past partnerships and checking their effects on historical charts. Here are some of the most recent examples of CGG's alliances.
First and foremost, in 2011, the CGG Group entered into a strategic partnership with the French group Bourbon. This agreement involved a 5-year charter of 6 new seismic support vessels, which was a real first in this industry. The first two vessels resulting from this collaboration, the Bourbon Fulmar and the Bourbon Petrel, were commissioned barely two years later. The other four vessels, including the Bourbon Gannet, will be commissioned before the end of 2014. The vessels developed by the two companies offer solutions adapted to the specific operational requirements and allow both the refueling of CGG's seismic vessels with equipment and personnel and the guarantee of operational safety. But the real novelty of these solutions concerns their ecological and economic aspects, since the hybrid propulsion systems with which they are equipped offer excellent management of fuel consumption by using both diesel and electric propulsion depending on the type of trip (escort or transit).
More recently, in 2019, other major partnerships have taken place with respect to CGG, such as the partnership set up between its subsidiary Sercel and the French services company Apave for the provision of a structural monitoring solution. Sercel was thus able to combine its cutting-edge sensor technology with the expertise of specialists in the field of structural monitoring. Sercel will thus be able to benefit from the Apave group's presence in order to offer an innovative continuous monitoring and decision support solution for all structural operators worldwide. Through this large-scale partnership, the two companies plan to market this solution during the course of the year and to carry out the very first deployments in France in early 2020.
Also in 2019, the CGG Group has also set up a much talked about strategic alliance with the US giant Microsoft. This is a partnership deal involving the development of geoscience services on Microsoft's Azure Cloud environment but also accelerating the iterative exploration and development processes of its clients. Through this partnership and thanks to the Azure Cloud solution, CGG's oil company clients will have access to a huge library of geoscience data as well as CGG's reservoir interpretation, analysis and characterization software. These clients will also be able to take advantage of CGG's optimized hosting of E&P data management solutions.
More recently, in 2019, CGG announced the signing of a firm agreement in principle with the Norwegian company Shearwater GeoServices in marine seismic acquisition and streamer technology. The group's goal here is to become, with the help of this company, one of the leaders in this business sector internationally.
First of all, the CGG Group's position as one of the world's leading providers of integrated geophysical and seismic services is of course an undeniable strength of this company. CGG currently holds nearly a quarter of the world market share. Through its subsidiary Sercel, CGG is also one of the world's largest geophysical equipment suppliers, which enables it to offer both services and equipment.
We can also appreciate the good distribution of the turnover of this company between its various subsidiaries and thus on the various segments represented. Thus, 43% of the turnover is currently acquired by seismic acquisition, 22% is generated by seismic equipment with the subsidiary Sercel and 35% comes from geoscience with the subsidiary CGR. This distribution allows CGG to protect itself against the risk of losses.
Another advantage for the CGG Group is the success of the cost-cutting and liquidity-securing measures implemented up to 2018, which have easily achieved their objectives.
Finally, we also appreciate the quality of the strategy implemented by CGG regarding its exposure to the contract data acquisition market. This strategy relies on revenues derived almost 60% from the GGR subsidiary, which specializes in geology, geophysics and reservoirs, 25% from equipment and 15% from data acquisition. By lowering the share of the data acquisition segment, CGG avoids focusing on a market that is running out of steam and concentrates its efforts on the most profitable activities for the future with constant or increasing demand.
First of all, geopolitical risks are still very present in the sector in which CGG operates and these risks can lead to significant losses at any time. In addition, this sector of activity is considered extremely cyclical since it is located upstream in the oil services chain. It is therefore very sensitive to the cuts in investment budgets that have affected oil and gas companies in recent years.
The successive revenue declines that have marked the CGG Group's latest earnings releases are also to be deplored, with an operating loss that cannot be effectively reduced following losses in the Acquisition division and the Equipment division.
Investors and shareholders are therefore cautious about the company's ability to generate substantial profits again in the medium and long term and therefore about a return to a positive dividend. Indeed, let us recall that at the beginning of 2016, a capital increase was dilutive for shareholders and CGG's debt rating was downgraded to CCC+.
Finally, the last negative point concerns CGG's share price directly. Indeed, this stock has recently hit historic lows. While this may be a sign of a cheap buying opportunity for some traders, this historic decline nevertheless calls for the utmost caution.
The CGG Group's capital is currently held in part by a number of major shareholders including Contarian Capital Management with 7.35%, Boussard & Gavaudan Investment Management with 5.09%, Thunderbird Partners with 5.05%, River & Mercantile Asset Management with 5.01%, Alden Global Capital with 4.97%, DNCA Finance with 4.80%, Attestor Capital with 4.28%, Third Point with 4.07%, Aurelius Capital Management with 4.06% and Norges Bank Investment Management with 3.76%.
CGG was founded in 1931 under its original name of Compagnie Générale de Géophysique. It was founded by the Schlumberger brothers. One of its past presidents was Léon Migaux, whose name was given to a street in Massy. The group then became CGG Veritas following its merger with North American company Veritas in 2007. Over the past 15 years, CGG has seen its profile evolve into an international high-tech group that is listed on both the Paris and New York stock exchanges.
To keep up to date with all the news that can influence the CGG share price, you can subscribe to a targeted online news feed or visit the official website of this company, in the section reserved for investors and shareholders. There you will find detailed income statements as well as all the important news of the group.
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