CGG eyes US rival to create oil service giant

PARIS, Sept 5, 2006 (AFP) – French geological services group CGG said Tuesday that it would buy US-based rival Veritas DGC for US $3.1 billion (EUR 2.4 billion) to create a world leader in the booming oil and gas services sector.

The friendly cash-and-shares takeover should be completed around the end of the year and would forge a company with combined annual revenue of 2.2 billion dollars (EUR 1.7 billion) with a fleet of 20 vessels for collecting seismic data.

The new company, CGG-Veritas, “will be a leader in its sector on a world level,” said CGG Chairman and CEO Robert Brunck, who will also head the merged entity.

Rising oil prices have driven a new surge in oil exploration, creating demand for related equipment and services, analysts note.

The Compagnie Générale de Géophysique (CGG) specializes in collecting and processing seismic data used by oil and gas companies during exploration work to locate and evaluate potential for new deposits.

Houston-based Veritas DGC provides geophysical information and services.

“With a combined workforce of approximately 7,000 staff operating worldwide, the future group will provide the industry benchmark for seismic technology and services to a broad base of customers, including independent, international and national oil companies,” the groups said in a joint release.

After the merger, CGG shareholders will control 65 percent of the company.

Brunck hailed the “complementarity” of the two companies, and forecast cost savings of US $65 million a year by 2008.

“Starting in 2007, we expect to clear two-thirds of this amount,” he said in a telephone conference. The savings “would be fairly easy to manage” and would “not cause problems for the employees,” he added.

The French group, a world leader in seabed imagery, said that the deal would boost profit in 2008 but would be “relatively neutral” in 2007.

Analysts were upbeat about the merger. “This operation allows for the consolidation of the most capital-intensive segments of the oil services sector,” said Sandrin Cauvin, an analyst at the Raymond James brokerage.

She said the merger “presents strong complementarities in terms of specialization, geography and clients.”

Brunck said the operation should be completed “around the end of the year.” The boards of both companies have approved the deal, and CGG shareholders will vet the merger in an extraordinary shareholder meeting scheduled for the end of December.

Trading in CGG shares was suspended until 1p.m. Tuesday, a Euronext spokesman told AFP after the merger was announced.

Separately, CGG reported Tuesday a net profit of EUR 29.7 million for the second quarter of 2006 after a loss of 0.9 million in the equivalent period of last year. Its turnover for the period was EUR 312.4 million, up 62 percent.

Analyst Couvin described the results as “better than our, or the consensus, forecast,” and attributed the strong performance to the company’s land and marine seismic equipment manufacturing division, Sercel.

Subject: French news