TGS Faces Charges for Tax Violation

Økokrim, the Norwegian National Authority for Investigation and Prosecution of Economic and Environmental Crime, has presented a criminal charge against TGS for violation of the Norwegian Tax Assessment Act and the Norwegian Securities Trading Act related to a contract entered into with Skeie Energy AS, later known as E&P Holding AS, in 2009.

The charge claims that TGS contributed to an unwarranted tax refund through the Norwegian Petroleum Tax Act, related to this specific license of seismic data to Skeie Energy. Skeie Energy purchased a license to existing TGS multi-client data mainly in North Sea and Barents Sea. In addition, the company prefunded a large 3D survey in the Hoop area of the Barents Sea. These surveys have since been licensed to multiple customers.

The payment for the transaction was made through a combination of cash payment and two loans of a total value of gross $42.1 million (net $29.4 million) which matured at year end 2010. Due to Skeie Energy’s failed attempt to raise new capital, the loans were not repaid according to the agreement at the maturity date. TGS has actively tried to collect its receivables from Skeie Energy in the period since default and has recognized an impairment of $19.9 million in 2011, such that the remaining net value of the loan is currently $9.5 million.

TGS, as a seismic data provider, does not participate in the petroleum tax refund system and received no tax benefits from the sale of seismic data to Skeie. The data sale was included in TGS’ net taxable income, subject to an ordinary income tax of 28%.

With regards to the same transaction, a secondary charge is presented against TGS concerning market manipulation, for disclosing incorrect or inaccurate financial information to the market.

In TGS’ opinion, the contract with Skeie Energy was an ordinary licensing transaction of high quality seismic data in a very prospective region. The sale was therefore treated in the financial statements as such.