“Not surprisingly Q1 was extremely challenging for sales of geoscientific library data”, TGS-NOPEC Geophysical’s chief executive officer Hank Hamilton stated. “We are clearly seeing increased sales activity in recent weeks and we continue to remain optimistic about the longer term fundamentals for our sector. We also believe we are well positioned to take advantage of opportunities that these difficult cycles usually present.”

Revenue Breakdown:

TGS-NOPEC Geophysical is developing, managing, conducting, and selling non-exclusive seismic surveys. This activity accounted for 75% of the company’s business during the quarter. Geological products and services (GPS) accounted for 16% of net revenues in the first quarter. Other contract proprietary revenues represented the remaining 9% of net revenues.

Consolidated net late sales after revenue sharing were down 47% compared to first quarter (Q1) 2008. Net pre-funding revenues totaled $34.5 million, funding 54% of the company’s operational investments into new multi-client products during Q1 ($63.6 million).

Proprietary contract revenues totaled $6.4 million compared to $19.6 million in Q1 2008 as the company used all contracted vessel capacity during this quarter to acquire its multi-client projects. The majority of the proprietary contract revenues came from processing services performed for clients on an exclusive basis.

Operational Costs:

The consolidated amortization charge associated with multi-client revenues was 51% of net multi-client revenues during Q1 2009 compared to 32% in Q1 2008. This rate does fluctuate from quarter to quarter, depending on the sales mix of projects. Of the multiclient seismic revenues recognized in Q1, only 3% came from fully written down surveys, and 87% came from work in progress that typically carries a higher amortization rate than the average blended rate from library sales.

Cost of goods sold, proprietary and other (COGS) were $0.4 million for the quarter, down from $9.6 million last year due to the lower proprietary contract activity. The personnel plus other operating costs were $15.1 million, down 21% from Q1 2008.

This decrease is due to higher capitalization of processing costs related to multi-client projects and lower bonus costs accrued for Q1.

EBIT and EBITDA

Operating profit (EBIT) for the quarter of $19.8 million represented 28% of net revenues. This was 58% lower than the $46.6 million reported in Q1 2008. EBITDA (Earnings before interest, tax, depreciation and amortization) for the quarter ended March 31, 2009 was $54.6 million, 77% of net revenues, down 28% from $75.9 million in Q1 2008.

Financial Items:

Financial Income & Expense, Exchange gains/losses:

To eliminate the currency risk associated with its NOK-denominated bond loan the company entered into a derivative currency swap contract because of the accounting treatment of this swap contract under IFRS, a move in the USD/NOK exchange rate inflates the lines “Financial expense” and “Exchange gains/losses” which largely offset each other for this element.

Loss/Gain on Financial Assets Held:

The company realized a financial gain of $0.3 million on the sale of its 10.1% holding in Wavefield-Inseis in January 2009.

Tax:

For the full year, TGS-NOPEC Geophysical reports tax charges in accordance with the Accounting Standard IAS 12. Tax charges are computed based on the $value relating to the appropriate tax provisions according to local tax regulations and currencies in each jurisdiction. The tax charges are influenced not only from local profits, but also from fluctuations in exchange rates between the local currencies and USD. Financial losses or profits on financial assets valued at fair value through profit and loss and the cost of stock options are non-deductible and non-taxable. This method makes it difficult to predict tax charges on a quarterly or annual basis. Management assesses that the operating consolidated tax rate is about 32%. Due to the movement in the exchange rate between the USD and the NOK in Q1, the parent company, which pays its taxes in NOK, realized a taxable profit on intercompany accounts with its subsidiaries. This resulted in a consolidated tax rate of 37% for the quarter.

Multi-Client Investments:

The company’s operational investments in its data library during Q1 2009 were $63.6 million, 4% higher than in Q1 2008. The company recognized $34.5 million in net pre-funding revenues in Q1, funding about 54% of its operational multi-client investments during the quarter.

Balance Sheet & Cash Flow:

The net cash flow from operations for the quarter, after taxes, before investments, totaled $95.9 million compared to $151.6 million in Q1 2008. As of March 31, 2009, the company’s total cash holdings amounted to $228.6 million compared to $148.3 million at December 31, 2009. As of March 31, 2009 TGS-NOPEC Geophysical held $53.8 million in Auction Rate Securities (ARS) comprised of $5.5 million of AA-rated municipal bonds and $50.3 million of AAA-rated closed-end funds. An ARS is an instrument for which the interest rate is reset when the instrument trades, typically every 7, 28, or 35 days, through a descending price auction.

When an ARS is up for trade, buyers submit a bid and the lowest rate necessary to sell the last available share establishes the clearing rate. If there are not enough buyers, then a failed auction occurs. A failed auction is not a default; the holder of the ARS continues to hold the security and receive interest payments at the failed rate – a maximum rate defined by the issuer. The most significant impact of a failed auction is a loss of liquidity; the security for which an auction has failed will continue to pay interest and be auctioned every 7, 28 or 35 days until there are buyers, the issuer calls the security for redemption, the issuer establishes a different form of financing to replace the security or the security matures.

TGS-NOPEC Geophysical began experiencing failed auctions in February, 2008, but has experienced no loss of principal. Since experiencing the first failed auction, TGS-NOPEC Geophysical has received redemptions totaling $37.4 million of ARS at par value. Of these, $26.8 million were redeemed prior to September 30th, $5.5 million during Q4 2008, and $5 million in Q1 2009. TGS-NOPEC Geophysical classifies its ARS as current financial investments available for sale. The market for these securities is still distressed. As TGS-NOPEC Geophysical has no need to liquidate these securities within the near future at discounted prices, TGS-NOPEC Geophysical has valued its ARS at fair value of $46.5 million based on a third party valuation that considered actual market trades as well as a discounted cash flow valuation method.

The company has sufficient cash and financial capacity to finance its operations and other known potential liabilities without selling the ARS. TGS-NOPEC Geophysical intends however, to sell these given the right opportunities.

The company believes that no impairment to goodwill and other intangible assets exists. The company issued in 2004 a five year 300 MNOK bond loan. In accordance with IAS 39 the loan was measured at amortized cost and is was recognized as a current liability in the balance sheet ($44.9 million at March 31, 2009). To eliminate the currency risk associated with the NOK bond loan the company at the same time entered into a derivative currency swap contract that fixed the amount to be repaid at maturity at $43.7 million. As the company does not apply hedge accounting for the transaction the fair value of the derivative instrument ($1.2 million) is in accordance with IAS 39 recognized as other current assets” in the balance sheet at March 31, 2009. The bond loan matured and was repaid in full on May 5, 2009 with no net effect to the income statement in Q2.