##### Table of Contents



UNITED STATES SECURITIES AND
    EXCHANGE COMMISSION
 Washington, D.C.
    20549
  Form 20-F
  o

REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR
    (g) OF THE SECURITIES EXCHANGE ACT OF 1934ORþ

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended
    December 31, 2006ORo

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934For the transition period
    from          toORo

SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
    THE SECURITIES EXCHANGE ACT OF 1934Date of event requiring this
    shell company report   Commission File Number: 1-14614
 Petroleum Geo-Services
    ASA
 (Exact name of registrant as
    specified in its charter)
  Kingdom of Norway
 (Jurisdiction of incorporation
    or organization)
  Strandveien 4, N-1325 Lysaker, Norway
 (Address of principal executive
    offices)
  Securities registered or to be registered pursuant to
    Section 12(b) of the Act:
  Title of Each Class

Name of Each Exchange on Which RegisteredAmerican Depositary Shares, each
    representing

New York Stock Exchange, Inc.one ordinary share of nominal
    value NOK 3 per shareOrdinary shares of nominal value
    NOK 3 per share*

New York Stock Exchange, Inc.   Securities registered or to be registered pursuant to
    Section 12(g) of the Act:
 None
  Securities for which there is a reporting obligation pursuant
    to Section 15(d) of the Act:
 None
    þ o
  o þ
  þ o
  Rule 12b-2
 þ o o
  o þ
  Rule 12b-2 o þ
  þ o
  *
    The ordinary shares were registered for technical purposes only,
    not involving trading privileges, in accordance with the
    requirements of the Securities and Exchange Commission.




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##### 



PETROLEUM
    GEO-SERVICES ASA
    ANNUAL REPORT ON
    FORM 20-F
    FOR THE
    YEAR ENDED DECEMBER 31, 2006
    TABLE OF CONTENTS
  
  PagePetroleum
    Geo-Services ASA


3Where You Can Find
    More Information


3Forward-Looking
    Statements


3Currency
    Presentations


4PART IITEM 1.


Identity of
    Directors, Senior Management and Advisors


5ITEM 2.


Offer Statistics
    and Expected Timetable


5ITEM 3.


Key
    Information


5ITEM 4.


Information on the
    Company


14ITEM 4A.


Unresolved Staff
    Comments


28ITEM 5.


Operating and
    Financial Review and Prospects


28ITEM 6.


Directors, Senior
    Management and Employees


48ITEM 7.


Major Shareholders
    and Related Party Transactions


57ITEM 8.


Financial
    Information


58ITEM 9.


The Offer and
    Listing


59ITEM 10.


Additional
    Information


61ITEM 11.


Quantitative and
    Qualitative Disclosures About Market Risk


72ITEM 12.


Description of
    Securities Other Than Equity Securities


74PART IIITEM 13.


Defaults, Dividend
    Arrearages and Delinquencies


75ITEM 14.


Material
    Modifications to the Rights of Security Holders and Use of
    Proceeds


75ITEM 15.


Controls and
    Procedures


75ITEM 16A.


Audit Committee
    Financial Expert


77ITEM 16B.


Code of
    Ethics


77ITEM 16C.


Principal
    Accountant Fees and Services


77ITEM 16D.


Exemptions from the
    Listing Standards for Audit Committees


78ITEM 16E.


Purchases of Equity
    Securities by the Issuer and Affiliated Purchasers


78PART IIIITEM 17.


Financial
    Statements


78ITEM 18.


Financial
    Statements


78ITEM 19.


Exhibits


79Articles of AssociationShipbuilding ContractShipbuilding ContractCertification of CEO Pursuant to Section 302Certification of CFO Pursuant to Section 302Certification of CEO & CFO Pursuant to Section 906Consent of Ernst & Young AS   2




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##### Table of Contents



PETROLEUM
    GEO-SERVICES ASA   WHERE YOU
    CAN FIND MORE INFORMATION  Form 20-F http://www.sec.gov http://www.pgs.com. Form 20-F
 FORWARD-LOOKING
    STATEMENTS    
    market conditions, anticipated demand and prices for our
    services and multi-client data that we license, productive
    capacity in the markets in which we operate, other competitive
    factors, possible expansion, technological developments and
    other trends in the businesses in which we operate;
    business strategies, including geographic areas in which we may
    operate from time to time and potential acquisitions
    and/or
    dispositions;
    the extent to which and manner in which our seismic vessels and
    equipment will be utilized, including utilization of such
    vessels to acquire contract or multi-client seismic data;
    expected completion of construction of new vessels from time to
    time;
    acquisition of contract and multi-client seismic data,
    governmental licensing activity relating to such acquisition and
    expected future licenses of multi-client seismic data;
    multi-streamer contract EBIT margins, multi-client revenue,
    Onshore revenues and operating profit;
    future capital expenditures, investments in our businesses and
    dividends;
    investments in, and amortization charges for, our multi-client
    library;
    governmental and tax regulations and enforcement;
    future exposure to currency devaluations or exchange rate
    fluctuations, including in particular fluctuations in the value
    of the U.S. dollar as compared to the Norwegian kroner and
    the British pound;
    interest rates; and
    future proposals to our shareholders. 3




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##### Table of Contents




    address activities, events or developments that we expect,
    believe, anticipate or estimate will or may occur in the future;
    are based at least in part on assumptions and analyses that we
    have made in good faith and that we believe were reasonable
    under the circumstances when made; and
    can be impacted by uncertainties and other factors, many of
    which are beyond our control.   CURRENCY
    PRESENTATIONS   4




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##### Table of Contents



PART I  ITEM 1.
    Identity
    of Directors, Senior Management and Advisors    ITEM 2.
    Offer
    Statistics and Expected Timetable    ITEM 3.
    Key
    Information  Selected
    Financial Data
    debtor-in-possession
  90-7, Financial Reporting by Entities in Reorganization Under
    the Bankruptcy Code, SOP 90-7.
 5




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##### Table of Contents



Successor Company


Predecessor CompanyTwo Months


Ten MonthsEnded


Ended


Year EndedYears Ended December 31,


December 31,


October 31,


December 31,2006


2005


2004


2003


2003


2002(In thousands of dollars, except for share data)STATEMENT OF OPERATIONS
    DATA:Revenues

$
1,308,459


$
888,021


$
707,519


$
123,082


$
639,330


$
718,772Operating profit (loss)


409,930



130,235



(68,309
)


2,022



(73,959
)


(232,804
)Debt redemption and refinancing
    costs






(107,315
)














Reorganization items:Gain on debt discharge


















1,253,851



Fresh-start adoption


















(532,268
)


Cost of reorganization










(3,498
)


(3,325
)


(52,334
)


(3,616
)Income (loss) from continuing
    operations


229,380



(97,070
)


(210,346
)


(24,650
)


484,430



(544,512
)Income (loss) from discontinued
    operations, net of tax


69,197



209,648



75,616



14,697



70,226



(466,528
)Net income (loss)


298,577



112,578



(134,730
)


(9,953
)


557,045



(1,174,678
)Basic and diluted income (loss)
    from continuing operations per share

$
1.27


$
(0.54
)

$
(1.16
)

$
(0.14
)

$
4.69


$
(5.27
)Basic and diluted net income (loss)
    per share


1.66



0.63



(0.75
)


(0.06
)


5.39



(11.37
)Basic and diluted weighted average
    shares outstanding(a)


180,000,000



180,000,000



180,000,000



180,000,000



103,345,987



103,345,987CASH FLOW DATA:Cash flows provided by operating
    activities

$
563,413


$
280,714


$
282,372


$
62,170


$
164,948


$
294,609Cash flows provided by (used in)
    investing activities


96,596



8,841



(183,446
)


(25,089
)


(69,732
)


(274,497
)Cash flows (used in) financing
    activities


(657,490
)


(300,953
)


(71,283
)


(25,807
)


(92,896
)


(7,636
)Capital expenditures


165,442



90,376



62,393



9,899



13,471



41,994Investment in multi-client library


113,658



55,667



41,140



9,461



81,142



151,590     (a)
    
    At our General Meeting on
    December 13, 2006, our shareholders approved a
    three-for-one
    split of our shares. Following the split, and as of
    December 31, 2006, we had 180,000,000 shares issued
    and outstanding, all of which are of the same class and have
    equal voting and dividend rights. Each share has a par value of
    NOK 3. All Successor Company share and per-share information
    included in this annual report gives effect to this
    three-for-one
    split of our shares.  PredecessorSuccessor Company


CompanyDecember 31,


December 31,2006


2005


2004


2003


2002(In thousands of dollars)BALANCE SHEET DATA:Total assets

$
1,225,753


$
1,717,572


$
1,852,153


$
1,997,360


$
2,839,757Multi-client library, net


49,406



146,171



244,689



408,005



583,859Total long-term debt and capital
    lease obligations


318,271



935,339



1,118,346



1,172,147



1,409,134Guaranteed preferred beneficial
    interest in PGS junior subordinated debt securities


















142,322Common stock


78,208



85,714



85,714



85,714



71,089Shareholders equity (deficit)


444,848



329,275



222,907



353,634



(192,254
)  6




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Risk
    Factors
  You should carefully consider the risks described below. If
    any of the following risks actually occur, our business,
    financial condition or results of operations could be materially
    adversely affected and the trading price of our securities could
    decline significantly.
  Risk
    Factors Relating to Our Business Operations
  Our
    business could be adversely affected if demand for our services
    from oil and natural gas companies decreases.
    We
    invest significant amounts of money in acquiring and processing
    seismic data for our multi-client data library without being
    certain about how much of the data we will be able to license or
    when and at what price we will be able to license the
    data.
    
    we may not fully recover the costs of the data through future
    licenses; and
    the value of our multi-client data could be adversely affected
    by, among other things, any adverse change in the general
    prospects for oil and natural gas exploration, development and
    production activities in the areas where we acquire multi-client
    data, by technological or regulatory changes and by other
    industry or general economic developments.    The
    amounts we amortize from our multi-client data library each
    period may fluctuate significantly, and these fluctuations can
    have a significant effect on our results of
    operations.
        We
    could incur operating losses if we cannot keep our vessels and
    other equipment utilized at high levels.
   7




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We
    have experienced substantial losses in the past and may do so in
    the future.
    Our
    future revenues may fluctuate significantly from period to
    period.
    
    increases and decreases in industry-wide capacity to acquire
    seismic data;
    fluctuating oil and natural gas prices, which may impact
    customer demand for our services;
    different levels of activity planned by our customers;
    the timing of offshore lease sales and licensing rounds and the
    effect of such timing on the demand for seismic data and
    geophysical services;
    the timing of award and commencement of significant contracts
    for geophysical data acquisition services;
    weather and other seasonal factors; and
    seasonality and other variations in the licensing of geophysical
    data from our multi-client data library.  We
    perform a portion of our contract seismic work under turnkey
    arrangements. If we bid too low on these contracts, we could
    incur losses on projects and experience reduced
    profitability.
  and/or
  Our
    profitability could be negatively impacted by excess capacity in
    the geophysical industry.
    Our
    technology could be rendered obsolete because technological
    changes and new products and services are regularly introduced
    to our markets, and we may not be able to develop and produce
    competitive products and services on a cost-effective and timely
    basis.
   8




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Unpredictable
    changes in governmental regulations could increase our operating
    costs and reduce demand for our services.
    
    permit or license requirements for geophysical activities and
    for oil and natural gas exploration, development and production
    activities;
    exports and imports;
    taxes;
    occupational health and safety; and
    the protection of the environment.  and/or
  Because
    we conduct a substantial amount of international operations, we
    have exposure to those risks inherent in doing business
    abroad.
    
    war, terrorist activities, political, civil or labor
    disturbances, border disputes and embargoes;
    damage to our equipment or violence directed at our employees;
    the possibility of unfavorable changes in tax or other laws;
    work stoppages;
    partial or total expropriation;
    renegotiation or nullification of existing contracts;
    restrictions on currency repatriation or the imposition of new
    laws or regulations that preclude or restrict the conversion and
    free flow of currencies;
    the imposition of new laws or regulations that have the effect
    of restricting operations or increasing the cost of
    operations; and
    the disruption or delay of licensing or leasing activities.  Our
    business experiences extreme weather and other hazardous
    conditions.
   9




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Because
    we do not have insurance with third party carriers to cover all
    operating risks, our results of operations could be adversely
    affected if one or more of those risks occurred.
  .
  Because
    we generate revenue and incur expenses in various currencies,
    exchange rate fluctuations and devaluations could have a
    material impact on our results of operations.
      We are
    subject to intense competition that could limit our ability to
    maintain or increase our market share and to maintain our prices
    at profitable levels.
    Our
    strategy of pursuing selective growth opportunities may be
    unsuccessful if we incorrectly predict operating results for
    acquired assets or businesses, are unable to identify and
    complete future acquisitions and integrate acquired assets or
    businesses or are unable to raise financing for acquisitions on
    acceptable terms.
    Our
    results of operations depend in part upon our ability to
    establish and protect our proprietary technology.
   10




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We
    depend on attracting and retaining qualified employees to
    develop our business.
    Risk
    Factors Relating to Financial Reporting Matters
  Failure
    to maintain effective internal controls over financial reporting
    could adversely affect both our ability to provide timely and
    accurate financial statements and the trading prices of our
    securities.
    Our
    adoption of fresh-start reporting and our transition
    to International Financial Reporting Standards may make our
    historical financial statements difficult to
    compare.
  SOP 90-7. SOP 90-7
    Risk
    Factors Relating to Our Indebtedness and Other
    Obligations
  Our
    indebtedness and other obligations restrict us in various
    ways.
   11




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
    we must dedicate some portion of our cash flow from operations
    to debt service and other contractual obligations, which reduces
    the amount we have available for capital investment, working
    capital or other general corporate purposes;
    we are more vulnerable to adverse developments in general
    economic and industry conditions;
    we may be less flexible in responding to changing market
    conditions or in pursuing favorable business opportunities;
    we may be limited in our ability to borrow additional
    funds; and
    we may be at a competitive disadvantage compared to our
    competitors that have less debt.    Our
    ability to obtain additional financing or to refinance our
    indebtedness could be restricted.
    Other
    Risk Factors
  If
    Petrojarl, our former production business, fails to meet its
    indemnification obligations to us or if we are subject to
    liabilities for which Petrojarl has not agreed to indemnify us,
    our business, results of operation or financial condition could
    be harmed.
    Petrojarl Foinaven co-venturers, Petrojarl Banff
  Petrojarl Foinaven
 12




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Our
    share repurchase program could increase the volatility of the
    price and decrease the liquidity of our ordinary
    shares.
  and/or
  We
    will require a significant amount of cash for our share
    repurchase program.
    We are
    a multinational organization faced with increasingly complex tax
    issues in many jurisdictions, and we could be obligated to pay
    additional taxes in various jurisdictions.
  Petrojarl Foinaven
  Because
    we are a foreign company and many of our directors and executive
    officers are not residents of the United States, you may have
    difficulty suing us and obtaining or enforcing judgments against
    us.
    
    suing us or our directors and executive officers in the United
    States;
    obtaining a judgment in the Kingdom of Norway in an original
    action based solely on United States federal securities
    laws; and
    enforcing in the Kingdom of Norway judgments obtained in the
    United States courts that are based upon the civil liability
    provisions of the United States federal securities laws.  We
    could be adversely affected by violations of applicable
    anti-corruption laws.
   13




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##### Table of Contents



and/or
  ITEM 4.
    Information
    on the Company  History
    and Development of the Company
  Organization
    Who We
    Are
  ®
    
    Marine, which consists of streamer seismic data
    acquisition, marine multi-client library, data processing and
    reservoir consulting; and
    Onshore, which consists of all seismic operations on land
    and in shallow water and transition zones, including onshore
    multi-client library.        Historical
    Development
    
    January 1991:  Company established with the
    merger of Geoteam a.s. and Nopec a.s. 14




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##### Table of Contents




    August 1992:  Company ordinary shares listed on
    Oslo Stock Exchange
    May 1993:  Initial public offering and listing
    in U.S. on NASDAQ
    1995-1999:  Construction
    and deployment of six Ramform design 3D seismic vessels
    April 1997:  Listing of our American Depositary
    Shares, or ADSs, on the New York Stock Exchange
    May 1998:  Acquisition of Golar-Nor
    (Petrojarl Iand Petrojarl Foinaven)
    October 1998:  Delivery of Ramform Banff
    July 1999:  Acquisition of FPSO Varg(renamed Petrojarl Varg)
    March 2001:  Sale of data management business
    and related software to Landmark Graphics Corporation, a
    subsidiary of Halliburton, and resumption of oil production by
    the re-tooled Ramform Banff
    August 2002:  Acquisition of 70% ownership in,
    and operatorship of, PL 038 on NCS of the North Sea (including
    the Varg field)
    August-November 2002:  Replacement of various
    members of senior management, including the Chairperson of our
    Board of Directors, our chief executive officer and our chief
    financial officer, with a new non-executive Chairperson of the
    Board, a new chief executive officer and a new chief financial
    officer
    February 2003:  Sale of Atlantis subsidiary to
    Sinochem
    February 2003:  Delisting of ADSs from the New
    York Stock Exchange and quotations for our ADSs available
    through the Pink Sheets
    July 2003:  Filing under Chapter 11 of
    U.S. Bankruptcy Code
    November 2003:  Emergence from Chapter 11
    proceedings, reorganization plan becomes effective and new Board
    of Directors takes office
    December 2004:  Re-listing of our ADSs on the
    New York Stock Exchange
    March 2005:  Sale of our former oil and gas
    subsidiary Pertra to Talisman
    December 2005:  Refinancing of
    $746 million of 10% senior notes and former
    $110 million credit facility with a new $1 billion
    senior secured credit facility
    June 2006:  Demerger of our former production
    business completed. Petrojarl listed as separate company  2006
    Developments
    
    the successful demerger of our former production business,
    Petrojarl
    continued strong safety performance
    strong full year cash flow and significant debt reduction
    significant improvement in our marine seismic contract operating
    profit margins
    significantly increased Onshore revenues and operating profit
    higher pre-funding levels and multi-client late sales
    re-entry into the Gulf of Mexico with a new, large multi-client
    survey
    commencement of construction on two new and enhanced Ramform
    vessels  2007
    Developments
    
    repurchased 2,123,500 shares for an aggregate cost of
    $49.2 million under our share repurchase program 15




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
    entered into agreements with the Japanese Ministry of Economy,
    Trade and Industry (METI) regarding the sale of
    Ramform Victory,subject to a
    four- to
    ten-year service agreement
    proposed to pay a special dividend of NOK 10 per share
    (subject to approval at our 2007 annual general meeting) and
    commenced an evaluation of a delisting of our ADSs from the New
    York Stock Exchange and a deregistration of our ADSs and shares
    under the U.S. Securities Exchange Act of 1934.  Demerger
    of Our Production Business (2006)
            Petrojarl Foinaven Petrojarl Banff
  Petrojarl Foinaven
  Sales
    of Subsidiaries (2003  2005)
   16




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Petrojarl Varg
    Our
    Business Priorities
    Marine
      Onshore
    Our
    Strategies
        
    reducing steaming and downtime in Marine,
    increasing our focus on survey project planning and execution,
    focusing our work where premium pricing is available,
    selectively increasing our streamer count, and
    investing in more effective seismic data acquisition capacity;    
    increasing our investments in our multi-client library with
    strong emphasis on prospectivity and high pre-funding, 17




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##### Table of Contents




    strengthening our emphasis on the target selection process and
    assessment of prospectivity,
    enhancing our existing library through reprocessing; and
    selectively making strategic equity investments through
    contributions of rights to use our multi-client data;    (5)
    capturing the full potential in our data processing centers and
    increasing our market share, especially in high-end processing;(6)
    commercializing and investing in new technology and equipment,
    including new streamers, to increase productivity on our unique
    Ramform seismic vessels and our
    HD3D®
    seismic solution; and      
    our Ramform seismic vessels;
    our high capacity computing facilities, together with the
    development of specialized proprietary software for seismic
    imaging, multi-component processing, signal enhancement and
    visualization technology; and
    state-of-the-art
    technology in our onshore seismic data acquisition equipment to
    enable efficient acquisition of high quality seismic data in
    varied terrain.    
    our highly experienced work force;
    high operational reliability, safety and customer satisfaction;
    our ability to tow more streamers and our superior streamer
    retrievability, control and stability, which yield better cost
    effectiveness on surveys and in adverse weather conditions,
    respectively;
    our high technology Ramform seismic vessels;
    the high channel counts and standardized equipment for our
    onshore operations; and
    our global presence.  Geographic
    Areas of Operation
    
    North and South America;
    Europe, Africa and the Middle East; and
    Asia Pacific.    
    North America (U.S. and Canada);
    Latin America (Mexico and South America); and
    Eastern Hemisphere.    
    offshore and onshore Canada;
    the Gulf of Mexico; 18




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
    onshore in the U.S. mid continent, Rocky Mountains and
    Alaskan North Slope regions;
    offshore and onshore Mexico and other parts of Latin America;
    offshore Brazil;
    the North Sea;
    the Mediterranean and Black Seas;
    offshore West Africa, including shallow water areas;
    the Middle East and Africa;
    the Caspian Sea area;
    offshore China and Korea;
    offshore India and onshore Bangladesh;
    offshore in the Sakhalin area of Russia; and
    offshore Australia, Indonesia and other countries in the Asia
    Pacific region.  Contract
    and Multi-Client Operations
  Contract
    Operations
      Multi-Client
    Operations
    
    the existence, quality and age of any seismic data that may
    already exist in the area;
    the amount of leased acreage in the area;
    whether or when an award of a license to explore and develop an
    area for production to be covered by a survey is expected to be
    granted;
    the prospectivity of the area in question for hydrocarbons and
    for future licenses of multi-client data;
    the existing infrastructure in the region to transport oil and
    natural gas to market; 19




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
    the historical turnover of the leased acreage;
    the political and economic stability of the countries where the
    data are to be acquired; and
    the level of interest from oil and natural gas companies in the
    area.          Our
    Marine Segment
  Marine
    Acquisition
    Streamer
    Seismic Acquisition
  ®
  Vessel
    Fleet and Crews
      
    recording instrumentation;
    digital recording streamers;
    acoustic positioning systems for source and streamer locations; 20




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##### Table of Contents




    multiple navigation systems for vessel positioning; and
    a source control system that controls the synchronization of the
    energy sources and an air gun array firing system that activates
    the acoustic energy source.    MaximumStreamersDeployedTotal


Total


Maximum


(through


Owned orYear Rigged/


Length


Beam


Streamer


December 31,


CharterVessel Name

Converted


(Feet)


(Feet)


Capability


2006)


Expiration3D Seismic Vessels:Ramform Explorer


1995



269



130



12



12



OwnedRamform Challenger


1996



283



130



16



12



Owned
(1)Ramform Valiant


1998



283



130



20



12



2023
(1)Ramform Viking


1998



283



130



20



10



OwnedRamform Victory


1999



283



130



20



16



2024
(1)(3)Ramform Vanguard


1999



283



130



20



12



OwnedAtlantic Explorer


1994



300



57



6



6



OwnedPacific Explorer


1994



300



72



8



8



OwnedNordic Explorer


1993



266



54



6



6



OwnedOcean Explorer


1993/2006



266



59



6



6



OwnedOrient Explorer


1995



269



49



4



4



2007
(2)2D Seismic Vessels:Falcon Explorer


1997/2006



268



53



1



1



OwnedSupport Vessels:Remus


1998



153



33



N/A



N/A



OwnedRomulus


1997



144



35



N/A



N/A



Owned     (1)
    
    We have UK lease arrangements for each of the Ramform
    Valiant, the Ramform Victoryand the Ramform
    Challenger. The UK lease for the Ramform Victorywas
    terminated March 15, 2007. Under the leases, we lease the
    vessels under long-term charters that give us the option to
    purchase the vessels for a de minimisamount at the end
    of the charter periods. The leases are legally defeased because
    we have made payments to banks in consideration for which the
    banks have assumed liability to the lessors equal to basic
    rentals and termination sum obligations. Please read Notes 2 and
    21 of the notes to our consolidated financial statements
    included in Item 18 of this annual report.(2)
    
    The charter agreement for the Orient Explorerhas a
    one-year term and will be extended annually for each year until
    2011, unless we terminate the charter by giving three
    months notice.(3)
    
    In March 2007, PGS entered into a heads of agreement with METI
    that contemplates the sale of the Ramform Victoryand a
    four-to-ten
    year service agreement. We expect METI to take delivery of the
    Ramform Victory in the fourth quarter of 2007. The heads
    of agreement is subject to the satisfactory completion of
    certain definitive documentation. On May 11, 2007, a main
    agreement, sales agreement and a license agreement were entered
    into, which are subject to completion of a technical and
    operational service agreement within 30 days.   21




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##### Table of Contents



®
  Competition
    in Our Marine Segment
    Data
    Processing and Technology
      Data Processing.
  
    that we use to develop multi-client data that is added to our
    own multi-client data library;
    that we use to reprocess and enhance older multi-client data to
    increase the potential for additional late sales; and
    to clients for their own use.      
    2D and 3D time and depth imaging services for land and marine
    seismic surveys;
    onboard (vessel) seismic data processing for reduced delivery
    times and enhanced real-time quality control for data that we
    acquire;
    multi-component and time-lapse seismic data processing;
    wide-azimuth and multi-azimuth seismic processing;
    HD3D®
    seismic processing; and
    specialized signal enhancement techniques.  Geoscience and Engineering.
  
    development of our next generation streamer system, which we
    expect will combine hydrophones and velocity sensors in a dual
    sensor towed streamer with the aim to improve both seismic image
    quality and operational efficiency;
    application of marine electro magnetic measurement to identify
    oil and natural gas in the subsurface, including applications
    where both the source and the recording device is towed; 22




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##### Table of Contents




    development and implementation of software for use by our Data
    Processing and Technology unit in seismic imaging and processing
    of data from non-conventional surveys;
    development and implementation of 3D visualization, seismic
    modeling and survey design systems; and
    improving technology for acquiring marine seismic data including
    streamer systems, seismic source systems and towing systems for
    large streamer spreads. This activity is a key factor in
    maintaining a leadership position in the efficient acquisition
    of marine seismic data.    Fiber Optic Technology.
  12-kilometer
  Competition in our Data Processing
    Business.
  Our
    Onshore Segment
    ®
   23




---



##### Table of Contents



Discontinued
    Operations
      Other
    Factors Related to Our Business
  Intellectual
    Property
  ®
  Seasonality
    Operating
    Conditions and Insurance
       24




---



##### Table of Contents



Governmental
    Regulation
        
    permitting or licensing agreements for oil and natural gas
    exploration, development and production activities;
    exports and imports;
    currency;
    taxes;
    occupational health and safety;
    the protection of the environment; and
    anti-corruption.      Capital
    Expenditures
    Geographic
    Mix of Operations and Segment Information
   25




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##### Table of Contents



Organizational
    Structure
    Shareholdingand VotingCompany

Jurisdiction

RightsPGS Shipping AS

Norway


100
%Oslo Seismic Services Ltd.

Isle of Man


100
%PGS Geophysical AS

Norway


100
%Multiklient Invest AS

Norway


100
%Petroleum Geo-Services, Inc.

United States


100
%Petroleum Geo-Services (UK)
    Ltd.

United Kingdom


100
%Seahouse Insurance Ltd.

Bermuda


100
%PGS Mexicana SA de CV

Mexico


100
%Dalmorneftegeofizika PGS AS

Norway


49
%Baro Mekaniske Verksted AS

Norway


10
%Calibre Seismic Company

United States


50
%PGS Capital, Inc.

United States


100
%Diamond Geophysical Services
    Company

United States


100
%PGS Exploration (Nigeria)
    Ltd.

Nigeria


100
%PGS Data Processing Middle East SAE

Egypt


100
%PGS Data Processing, Inc.

United States


100
%Petroleum Geo-Services Asia
    Pacific Pte. Ltd.

Singapore


100
%PGS Australia Pty. Ltd.

Australia


100
%Atlantis (UK) Ltd.

United Kingdom


100
%PGS Egypt for Petroleum Services

Egypt


99
%Hara Skip AS

Norway


100
%PGS Exploration, SDN BHD

Malaysia


100
%PGS Exploration, Inc.

United States


100
%PGS Exploration Pty. Ltd.

Australia


100
%PGS Ocean Bottom Seismic,
    Inc.

United States


100
%PGS Exploration (UK) Ltd.

United Kingdom


100
%PGS Pension Trustee Ltd.

United Kingdom


100
%PGS Reservoir Ltd.

United Kingdom


100
%Atlantic Explorer Ltd.

Isle of Man


50
%Oslo Seismic Services Inc.

United States


100
%Oslo Explorer Plc

Isle of Man


100
%Oslo Challenger Plc

Isle of Man


100
%PGS Shipping (Isle of Man)
    Ltd.

Isle of Man


100
%PGS Onshore, Inc.

United States


100
%PGS Onshore (Canada), Inc.

Canada


100
%PGS Americas, Inc.

United States


100
%Seismic Energy Holding, Inc.

United States


100
%PGS Exploration (Norway) AS

Norway


100
%PGS Multi-Client Seismic Ltd.

Jersey


100
%PGS Marine Services (Isle of Man)
    Ltd.

Isle of Man


100
%Deep Gulf LLC

United States


50.1
% 26




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##### Table of Contents



Shareholdingand VotingCompany

Jurisdiction

RightsPGS Nopec (UK) Ltd.

United Kingdom


100
%PGS Nominees Ltd.

United Kingdom


100
%SOH, Inc.

United States


100
%PT PGS Nusantara

Indonesia


100
%PGS Geophjysical (Angola)
    Ltd.

United Kingdom


100
%Seismic Exploration (Canada)
    Ltd.

United Kingdom


100
%PGS Ikdam Ltd.

United Kingdom


100
%Sakhalin Petroleum Plc.

Cyprus


100
%PGS Investigacào Petrolifera
    Limitada

Brazil


100
%Sea Lion Exploration Ltd.

Bahamas


100
%PGS Administración y
    Servicios S.A. de C.V.

Mexico


100
%PGS Servicios C.A.

Venezuela


100
%PGS Venezuela de C.A.

Venezuela


100
%PGS Overseas AS

Norway


100
%PGS Suporte Logistico e Servicos
    Ltda.

Brazil


100
%PGS Finance, Inc.

United States


100
%PGS Japan K.K.

Japan


100
%PGS (Kasakhstan) LLP

Kazakhstan


100
%PGS CIS LLC

Russia


100
%PGS Seismic (UK) Ltd.

United Kingdom


100
%Genesis Petroleum Europe Ltd.

United Kingdom


50
%PGS Data Processing and Technology
    Sdn. Bhd.

Malaysia


100
%PGS Onshore (Algeria) EURL

Algeria


100
%PGS (Malta) Limited

Malta


100
%PGS (Malta) Holdings Limited

Malta


100
%PGS Overseas Operation (Cyprus)
    Ltd.

Cyprus


100
%PGS Overseas Trading (Cyprus)
    Ltd.

Cyprus


100
%PGS Khazar

Russia


100
%PGS Onshore Peru S.A.C

Peru


100
%PGS Onshore Services S.A.C.

Peru


100
%PGS Technology (Sweden) AB

Sweden


100
%Genesis Petroleum Corporation plc

United Kingdom


24.4
%PGS Exploration Morocco SARL

Morocco


100
%   Leased
    Premises
   27




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##### Table of Contents



ITEM 4A.  Unresolved
    Staff Comments   ITEM 5.  Operating
    and Financial Review and Prospects  You should read the discussion under this caption in
    combination with consolidated financial statements and the
    related notes in Item 18 of this annual report and
    Key Information  Selected Financial Data
    in Item 3 of this annual report. This discussion is based
    upon, and the consolidated financial statements included in
    Item 18 of this annual report have been prepared in
    accordance with, United States generally accepted accounting
    principles. The following information contains forward-looking
    statements. You should refer to the section in this annual
    report captioned Forward-Looking Statements for
    cautionary statements relating to forward-looking statements.
  Overview
  Who We
    Are
      
    Marine, which consists of streamer seismic data
    acquisition, marine multi-client library, data processing and
    reservoir consulting; and
    Onshore, which consists of all seismic operations on land
    and in shallow water and transition zones, including onshore
    multi-client library.    Share
    Repurchase Program
    NYSE
    Delisting
  12-month
 28




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##### Table of Contents



Demerger
    of Our Former Production Business
    Sale
    of Pertra
  Petrojarl Varg
    2005
    Refinancing
    2003
    Financial Restructuring and Fresh-Start Reporting
   29




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##### Table of Contents



90-7, Financial Reporting by Entities in Reorganization under
    the Bankruptcy Code. SOP 90-7
  Critical
    Accounting Policies and Estimates
      
    revenue recognition;
    multi-client data library, including cost capitalization, sales,
    amortization and impairment;
    impairment of long-lived assets;
    deferred tax assets; and
    fresh-start reporting.  Revenue
    Recognition
      
    Late sales  we grant a license to the customer for a
    specified portion of the library.
    Volume sales agreements  we grant a license or
    licenses to a specified number of blocks in a defined
    geographical area, allowing the customer to select and access
    the specific blocks over a period of time.
    Pre-funding arrangements  we obtain funding from a
    limited number of customers before we complete a seismic
    acquisition project. In return for the pre-funding,  we may
    provide the customer the ability to direct or influence the
    project specifications, to access data as it is being acquired
    and to pay discounted prices.    
    from late sales when the customer executes a valid license
    agreement and has been granted access to the licensed portion of
    the multi-client library and collection is reasonably assured; 30




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##### Table of Contents




    from volume sales agreements ratably based on the total revenue
    and volume of data specified in the agreement as the customer
    executes licenses for specific blocks and has been granted
    access to the data, and collection is reasonably
    assured; and
    from pre-funding arrangements as the services are performed on a
    proportional performance basis, generally based on physical
    progress, provided that all other revenue recognition criteria
    are satisfied.  Multi-Client
    Library
    survey-by-survey
        Impairment
    of Long-Lived Assets
   31




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##### Table of Contents



Deferred
    Tax Assets
      SOP 90-7)
  Fresh-Start
    Reporting
  SOP 90-7.
   32




---



##### Table of Contents



Petrojarl Foinaven,
  Seasonality
  end-of-year
    start-up
  Foreign
    Currency Fluctuations
   33




---



##### Table of Contents



Results
    of Operations
  Overview
      Revenues
    Years Ended December 31,2006


2005


2004(In thousands of dollars)MarineContract

$
635,626


$
424,192


$
297,749Multi-client pre-funding


131,254



40,006



30,535Multi-client late sales


221,980



218,781



203,397Data Processing


46,401



41,275



38,639Other


9,254



428



4851,044,515



724,682



570,805OnshoreContract


218,215



122,415



110,288Multi-client pre-funding


17,644



16,148



12,761Multi-client late sales


27,491



13,976



10,112263,350



152,539



133,161Shared
    Services/Corporate


2,652



19,418



20,852Elimination of inter-segment
    sales


(2,058
)


(8,618
)


(17,299
)Total revenues

$
1,308,459


$
888,021


$
707,519     Marine  2006 vs. 2005.
 34




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##### Table of Contents



Marine  2005 vs. 2004.
  Onshore  2006 vs. 2005.
  Onshore  2005 vs. 2004.
  Shared Services/Corporate revenues.
  Elimination of inter-segment sales.
 35




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##### Table of Contents



Cost
    of Sales
    Years Ended December 31,2006


2005


2004(In thousands of dollars)Marine

$
436,212


$
373,504


$
342,460% of revenue


41.8
%


51.5
%


60.0
%Onshore

$
189,544


$
124,334


$
92,290% of revenue


72.0
%


81.5
%


69.3
%Shared
    Services/Corporate

$
(2,011
)

$
8,613


$
9,558Elimination of inter-segment
    items

$
(3,028
)

$
(8,151
)

$
(17,603
)Total cost of sales

$
620,717


$
498,300


$
426,705% of revenue


47.4
%


56.1
%


60.3
%   Cost of sales  2006 vs. 2005.
  Cost of sales  2005 vs. 2004. start-up
  Shared Services/Corporate.
  Elimination of inter-segment
    items.
  Depreciation
    and Amortization
   36




---



##### Table of Contents



Years Ended December 31,2006


2005


2004(In thousands of dollars)Marine:Adjusted D&A

$
54,857


$
54,120


$
55,277MCL amortization


111,299



118,229



186,435D&A


166,156



172,349



241,712Onshore:Adjusted D&A


14,173



16,355



18,677MCL amortization


14,964



15,310



21,208D&A


29,137



31,665



39,885Shared
    Services/Corporate/Elimination:Adjusted D&A


3,333



3,637



2,413MCL amortization


(21
)


930



825D&A


3,312



4,567



3,238Total:Adjusted D&A


72,363



74,112



76,367MCL amortization


126,242



134,469



208,468D&A

$
198,605


$
208,581


$
284,835   2006 vs. 2005.
    SOP 90-7
  2005 vs. 2004.
   37




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##### Table of Contents



Selling,
    General and Administrative Costs
      Impairment
    of Long-Lived Assets
  survey-by-survey
  Loss
    on Sale on Subsidiary
    Other
    Operating (Income) Expense, Net
    Interest
    Expense and Other Financial Items, net
       38




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##### Table of Contents



101-102%
  Reorganization
    Items
    Income
    Tax Expense
          Income
    from Discontinued Operations, Net of Tax
     39




---



##### Table of Contents



Operating
    Profit (Loss) and Net Income (Loss)
      Segment
    Operating Profit
    Years Ended December 31,Segment Operating Profit

2006


2005


2004(In thousands of dollars)Marine

$
399,916


$
150,229


$
(34,980
)Onshore


37,676



(9,803
)


(4,535
)Shared
    Services/Corporate


(28,653
)


(24,131
)


(20,986
)Elimination of inter-segment
    items


991



(467
)


304Total

$
409,930


$
115,828


$
(60,197
)   Marine
  Onshore
    Outlook;
    Factors Affecting Our Future Operating Results
    
    the development of our main market drivers, which includes
    prices and price expectations for oil and natural gas. Such
    prices and price expectations affect the demand for seismic
    services; 40




---



##### Table of Contents




    the business performance of our two business segments, Onshore
    and Marine, including, among others:  
    the demand for contract seismic services, coupled with
    (a) our ability to benefit from our strong
    HD3D®
    position and high productivity and vessel performance,
    (b) our ability to reduce steaming and other unproductive
    vessel time, and (c) the prices for our services;
    demand for multi-client seismic data in various geographic
    regions
    our ability to profitably expand our multi-client library
    database to complement our contract work;
    satisfactory progress of the construction of our two new third
    generation Ramform vessels; and
    implementation of our streamer expansion and replacement program
    for our seismic vessels;  
    foreign currency exchange rate fluctuations between the
    U.S. dollar, our functional currency, and the Norwegian
    kroner or the British pound, which will generally have an impact
    on our operating profit because we have significant operating
    expenses in Norwegian kroner and British pounds;
    the extent to which we participate in strategic acquisitions or
    dispositions of assets or businesses or in one or more joint
    ventures involving such assets or businesses; and
    our ability to continue to develop or acquire competitive
    technological solutions for our different business units.        Marine
  
    Based on work performed so far in 2007, our order backlog for
    work scheduled for 2007 and our expectations regarding future
    contracts, we expect Marine streamer contract EBIT margins to
    increase substantially from 2006 levels;
    Primarily based on our plans regarding approximately doubling
    our multi-client investments in 2007 and the associated
    pre-funding revenues related to these investments, we expect
    multi-client revenues to be higher in 2007 than 2006; and
    We expect to increase cash investments in both multi-client
    library and capital expenditures. The expected increase in
    capital expenditures in 2007 compared to 2006 is primarily a
    result of our ongoing program to build two new Ramform vessels.  Onshore
  
    We expect to have between eight and twelve crews working in
    2007, approximately the same number as in 2006;
    Based on our order backlog and likely additional contract
    awards, we expect to be able to maintain a margin on contract
    work comparable with 2006 levels; and
    We expect to  significantly increase cash investments in both
    multi-client library and capital expenditures. In addition, we
    expect increased pre-funding revenues due to increased
    multi-client activity. 41




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##### Table of Contents



Liquidity
    and Capital Resources
  Liquidity 
    General
      Sources
    of Liquidity  Capital Resources
         42




---



##### Table of Contents



(In millions of dollars)10% Senior Notes, due 2010

$
48.28% First Preferred Mortgage
    Notes, due 2011


76Term loan (Libor + applicable
    margin), due 2012


244Total debt

$
324Capital leases


14Total

$
338       
    our total leverage ratio may not exceed 3.00 to 1.0,
    our consolidated interest coverage ratio (defined as the ratio
    of (a) consolidated EBITDA, as defined, reduced by
    multi-client investments, to (b) consolidated interest
    expense) must be at least 3.0 to 1.0, and
    our consolidated fixed charge coverage ratio (defined as the
    ratio of (a) consolidated EBITDA, as defined, reduced by
    multi-client investments, to (b) consolidated fixed
    charges) must be at least 1.3 to 1.0.       43




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##### Table of Contents



Net
    Cash Used in or Provided by Investing and Financing
    Activities
        Capital
    Requirements and Commitments
  General.
  
    capital expenditures on seismic vessels and equipment, including
    data processing equipment and streamers;
    investments in our multi-client library; and
    working capital related to growth, seasonality and specific
    project requirements.      Years Ended December 31,Business Segments

2006


2005


2004(In million of dollars)Marine

$
146.4


$
72.2


$
56.9Onshore


16.7



12.6



1.4Shared Services/Corporate


2.3



5.6



4.1Total


165.4



90.4



62.4Investments in multi-client library

$
113.7


$
55.7


$
41.1     
    to more than double our cash investment in our Marine
    multi-client library from an investment of $81.2 million in
    2006, with continued high pre-funding levels; 44




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##### Table of Contents




    to approximately double the level of cash investment in our
    Onshore multi-client library from the $32.4 million
    invested in 2006; and
    to have capital expenditures, in addition to the investment in
    the new Ramform seismic vessels described below, of
    $110 million to $120 million in Marine, split in
    approximately equal portions between maintenance and expansion
    capital expenditures, and of approximately $20 million in
    Onshore, a slight increase from 2006.    Ramform Sovereign. Ramform Sovereign,
  Funding our Share Repurchase Program and Extraordinary
    Dividend.
  Off-Balance
    Sheet Arrangements
   45




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##### Table of Contents



Long-Term
    Contractual Obligations
    Payments Due by PeriodContractual Obligations

Total


2007


2008-2009


2010-2011


Thereafter(In million of dollars)Long-term debt obligations

$
324.1


$
12.9


$
29.2


$
38.4


$
243.6Operating lease obligations


98.9



37.2



27.1



17.3



17.3Capital lease obligations


13.9



6.9



7.0







Other long-term liabilities(a)


65.4



14.8



22.3



6.7



21.6Total

$
502.3


$
71.8


$
85.6


$
62.4


$
282.5     (a)
    
    Excluding other long-term liabilities that are contingent and
    not determinable with respect to the timing of future payments
    (see the table below captioned Other Long-Term
    Liabilities).      Payments Due by Period





NotOther Long-Term Liabilities

Total


2007


2008-2009


2010-2011


Thereafter


Determinable(In millions of dollars)Other long-term liabilities:Pension liabilities(a)

$
53.9


$
10.8


$
16.9


$
4.6


$
21.6


$
Accrued liabilities related to our
    UK leases: related to interest
    rate differential(b)


6.1



2.0



2.0



2.1







Tax contingencies


22.0



















22.0Fair value adjustment of firm
    commitments


4.5



2.0



2.5











Unrealized loss forward exchange
    contracts


0.9







0.9











Other


4.1



















4.1Total

$
91.5


$
14.8


$
22.3


$
6.7


$
21.6


$
26.1     (a)
    
    We have defined benefit pension plans in Norway and in the UK.
    Pension liability represents the aggregate shortfall of pension
    plan assets compared to projected benefit obligations for our
    plans, as recognized in our consolidated balance sheet. We will
    pay these obligations over time, as adjusted for changes in
    estimates relating to obligations and assets, in accordance with
    the funding requirements of the life insurance companies through
    which we fund our plans in Norway and in accordance with the
    funding practice that we agree with the trustees of our pension
    scheme in UK. Such requirements are subject to change over time,
    but we expect these payments to be made over several years. 46




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##### Table of Contents



(b)
    
    The estimated net present value of future payments related to
    interest rate differential on our UK leases as of
    December 31, 2006 is approximately $9.7 million based
    on forward interest rate curve (using 8% per annum discount
    rate), which is approximately $3.6 million higher than the
    amount included in accrued liability from fresh-start reporting.
    Payments through the year 2009 reflect estimated total payments
    based on forward interest rate curves as of December 31,
    2006. The amount presented for 2010-2011 is the residual amount.  UK
    Leases
  Ramforms Challenger, Valiant, Viking, Victory Vanguard. 15-25 years. Ramform
    Viking Ramform Vanguard Ramform Victory
      Ramform Challenger. Ramform
    Challenger
     47




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##### Table of Contents



Petrojarl
    Petrojarl Foinaven Petrojarl Banff
  Petrojarl Foinaven
    Research
    and Development
    ITEM 6.
    Directors,
    Senior Management and Employees  Board of
    Directors
    Director


Term


ShareName (Born)

Position


Since


Expires(a)


OwnershipJens Ulltveit-Moe (1942)


Chairperson



2002



2007



11,775,822Francis Gugen (1949)


Director



2003



2007



Siri Beate Hatlen (1957)


Director



2006



2007



Wenche Kjølås (1962)


Director



2006



2007



Harald Norvik (1946)


Director



2003



2007



Holly Van Deursen (1958)


Director



2006



2007



  48




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##### Table of Contents



(a)
    
    The annual general meeting is scheduled for June 15, 2007  Mr. Ulltveit-Moe
  Mr. Gugen
  Ms. Hatlen
  Ms. Kjølås
  Mr. Norvik
  Ms. Van Deursen start-up not-for-profit
 49




---



##### Table of Contents



Committees
          
    financial statement and disclosure matters, including our
    quarterly and annual financial statements and related
    disclosures;
    reviewing the quarterly and annual financial statements,
    including reviewing major issues regarding accounting principles
    and financial statement presentations, the adequacy of our
    internal controls and discussing significant financial reporting
    issues and judgments made in connection with preparation of the
    financial statements;
    provision by the auditor of audit services and permitted
    non-audit services;
    audits of our financial statements, including reviewing our
    critical accounting policies and practices;
    our relationship with our independent registered public
    accounting firm, including the qualifications, performance and
    independence of the auditors;
    our internal audit function; and
    responsibilities to comply with various legal and regulatory
    requirements that could affect our financial statements.   50




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##### Table of Contents



Nomination
    Committee
    
    individuals who are nominated to serve as members of the Board
    of Directors and as the chairperson of the Board of Directors;
    individuals who are nominated to serve as members of the
    nomination committee and as the chairperson of the nomination
    committee;
    the remuneration of the directors and the members of the
    nomination committee; and
    any amendments of the nomination committee mandate and charter.  Mr. ONeil
  Ms. Harlem
  Ms. Devine
  Corporate
    Governance
   51




---



##### Table of Contents



www.pgs.com ir@pgs.com
  Director
    Independence
      Meetings
    of Non-management Directors
    Certifications
    Executive
    Officers
    ExecutiveOfficer


ShareName (Born)

Position:


Since


OwnershipSvein Rennemo (1947)


President and Chief Executive Officer



2002



43,765Gottfred Langseth (1966)


Senior Vice President and Chief Financial Officer



2004



5,257Rune Eng (1961)


President  Marine



2004



15,138Eric Wersich (1963)


President  Onshore



2003



6,333Sverre Strandenes (1956)


President  Data Processing and Technology



2006



4,562   Mr. Rennemo
 52




---



##### Table of Contents



Mr. Langseth
  Mr. Eng
  Mr. Wersich
  Mr. Strandenes
  Share
    Ownership of Directors and Executive Officers
      Compensation
    of Directors
   53




---



##### Table of Contents



ShareName:

Position:


Director Since


Term Expire


Compensation


Ownership(In dollars)Jens Ulltveit-Moe


Chairperson



2002



2007



64,643



6.5
%(a)Keith Henry


Vice chairperson



2003
(b)


2006



70,079



Francis Gugen


Vice chairperson



2003
(c)


2007



116,785



Harald Norvik


Director



2003



2007



74,437



Rolf Erik Rolfsen


Director



2002
(b)


2006



41,450



Clare Spottiswoode


Director



2003
(b)


2006



54,171



Anthony Tripodo


Director



2003
(d)


2007



111,917



Holly Van Deursen


Director



2006
(e)


2007



27,258



Siri Beate Hatlen


Director



2006
(e)


2007



18,361



Wenche Kjølås


Director



2006
(e)


2007



26,777



     (a)
    
    Controlled through Umoe Shipping and Energy AS.(b)
    
    Resigned as a director in June 2006.(c)
    
    Vice chairperson from July 2006.(d)
    
    Resigned as a director in February 2007.(e)
    
    Appointed as a director in June 2006.  Compensation
    of Executive Officers
    Year Ended December 31, 2006OtherName:

Position:


Fixed Salary


Bonus(a)


Compensation(In dollars)Svein Rennemo


President and Chief Executive Officer



555,985



405,213



37,614Gottfred Langseth


Senior Vice President and Chief Financial Officer



348,781



196,372



28,061Rune Eng


President  Marine



401,512



224,426



27,968Eric Wersich


President  Onshore



289,583



124,000



12,349Sverre Strandenes


President  Data Processing and Technology
    (from November 2006) (b)



48,145



26,056



4,786     (a)
    
    2005 bonus paid during 2006, including share purchase bonus.(b)
    
    Includes compensation for two months in 2006.      12-month
 54




---



##### Table of Contents



Value of


Accrued 2006Options Held at


Bonus atBenefit Paid to


December 31,


December 31,Name:

Position:


Pension Plan(a)


2006(b)


2006(c)(In dollars)Svein Rennemo


President and Chief Executive Officer



7,753



824,764



455,865Gottfred Langseth


Senior Vice President and Chief Financial Officer



10,396



618,573



294,091Rune Eng


President  Marine



11,155



618,573



351,055Eric Wersich


President  Onshore







412,382



225,000Sverre Strandenes


President  Data Processing and Technology



3,680



515,478



257,154     (a)
    
    Contribution to defined benefit plan (Norway). Two months
    included for Mr. Strandenes.(b)
    
    Value of share options is calculated based on number of share
    options (see below) and fair value of option (NOK 44.10) (see
    Note 24 of the consolidated financial statements included
    in Item 18 of this annual report).(c)
    
    Bonus earned and accrued in 2006, including share purchase bonus.      Weighted AverageNumber of Share


Number of Share


Average


RemainingOptions Issued


Options at 31,


Exercise


ContractualName:

July, 2006(a)


December 2006


Price(b)


TermSvein Rennemo


120,000



120,000



NOK 121.50



4.5 yearsGottfred Langseth


90,000



90,000



NOK 121.50



4.5 yearsRune Eng


90,000



90,000



NOK 121.50



4.5 yearsEric Wersich


60,000



60,000



NOK 121.50



4.5 yearsSverre Strandenes


75,000



75,000



NOK 121.50



4.5 years  55




---



##### Table of Contents



(a)
    
    Number of share options and figures in the table are adjusted
    for the
    three-for-one
    share split effective December 13, 2006 (see Note 24
    of the consolidated financial statements included in
    Item 18 of this annual report.)(b)
    
    See Note 24 of the consolidated financial statements
    included in Item 18 of this annual report for further
    detail.    Board of Directors statement on remuneration to the CEO
    and the Executive Officers
                 56




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##### Table of Contents



Employees
    At December 31,2006


2005


2004Marine


1,381



1,192



1,115Onshore(a)


1,589



3,237



1,011Shared Services/Corporate


198



189



256Total


3,168



4,618



2,382Discontinued operations






512



517     (a)
    
    Onshore includes crew hired for specific time periods (generally
    the length of a specific project) totaling 1,345, 3,064 and 891
    crew members as of December 31, 2006, 2005 and 2004,
    respectively. The increase in the number of our Onshore
    employees in 2005, as compared with 2004 and 2006, was primarily
    attributable to our hiring of local workers to staff seismic
    crews in connection with a single onshore project in Bangladesh.    ITEM 7.
    Major
    Shareholders and Related Party Transactions       57




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##### Table of Contents



ITEM 8.
    Financial
    Information  Financial
    Statements
    Legal
    Proceedings
    Dividend
    Restrictions
      
    the annual profit according to the income statement for the last
    financial year; 58




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##### Table of Contents




    other unrestricted equity, after deduction of:  
    accumulated losses;
    the book value of research and development, goodwill and net
    deferred tax assets recorded on the balance sheet;
    the aggregate nominal value of treasury shares held by or
    pledged to us;
    the value of such credit or security in favor of our
    shareholders, directors or management that can be granted only
    out of our unrestricted equity; and
    any part of the annual profit that, according to law or our
    articles of association and the articles of each of our
    Norwegian subsidiaries, must be allocated to restricted funds.      Significant
    Changes
    ITEM 9.
    The
    Offer and Listing  Listing
    Details
          American
    Depositary Shares
   59




---



##### Table of Contents



Price per ADSCalendar Period

High


Low2002

$
0.88


$
0.042003 (through February 26)


0.05



0.032003 (February 26 
    November 5)


0.17



0.012003 (from November 6)


4.78



3.642004 (through December 16)


6.92



3.722004 (from December 17)


6.90



6.742005


10.61



6.302006


24.95



10.33   Price per ADSCalendar Period

High


LowFirst Quarter 2005

$
8.31


$
6.61Second Quarter 2005


8.42



6.30Third Quarter 2005


10.61



8.00Fourth Quarter 2005


10.53



8.13First Quarter 2006


15.57



10.33Second Quarter 2006


24.95



15.57Third Quarter 2006


22.65



15.40Fourth Quarter 2006


23.45



15.43   Price per ADSCalendar Period

High


LowOctober 2006

$
19.44


$
15.43November 2006


22.48



19.41December 2006


23.45



22.05January 2007


23.87



20.88February 2007


25.05



22.65March 2007


26.34



22.07April 2007


27.93



26.04   Shares
    Price per ShareCalendar Period

High


Low2002


NOK 7.8



NOK 0.32003 (through November 5)


1.2



0.12003 (from November 6)


31.2



21.12004


38.2



24.32005


62.8



35.92006


146.5



63.8   60




---



##### Table of Contents



Price per ShareCalendar Period

High


LowFirst Quarter 2005


NOK 48.1



NOK 37.0Second Quarter 2005


48.8



35.9Third Quarter 2005


62.0



46.6Fourth Quarter 2005


62.8



46.7First Quarter 2006


97.2



63.8Second Quarter 2006


136.0



90.5Third Quarter 2006


125.7



97.2Fourth Quarter 2006


146.5



102.8   Price per ShareCalendar Period

High


LowOctober 2006


NOK 128.0



NOK 102.8November 2006


139.5



126.7December 2006


146.5



134.2January 2007


153.0



135.5February 2007


158.8



142.5March 2007


158.8



136.8April 2007


167.0



157.0   ITEM 10.
    Additional
    Information  Description
    of Share Capital
    Organization,
    Register and Purpose
    Voting
    Rights
     61




---



##### Table of Contents




    the beneficial owner provides us, no later than two business
    days prior to the meeting, with its name, address and a
    confirmation from the custodian that the holder is the
    beneficial owner of the shares held in custody; and
    our Board of Directors does not disapprove the beneficial
    ownership after receipt of notification as described below under
     VPS and Transfer of Shares.        
    whenever our Board of Directors considers it necessary;
    at the request of our auditor; or
    at the request of shareholders representing at least 5% of our
    share capital.      Restrictions
    on Ownership of Shares
    Share
    Register
   62




---



##### Table of Contents



VPS
    and Transfer of Shares
  000-4225004.
          
    the transfer or assignment has been registered or that person
    has reported and shown evidence to us of the share
    acquisition; and
    the acquisition is not prevented by law, our articles of
    association or otherwise.    ADSs
    and Transfer and Voting
    
    requesting that the shares be certificated by having them
    transferred to a VPS account in the name of the holder;
    providing name and address information, and a confirmation from
    Citibank N.A., as depositary for the ADSs, to the effect that
    the holder is the beneficial owner of the underlying
    shares; or
    authorizing Citibank N.A. to vote the ADSs on the holders
    behalf.  Disclosure
    Obligations
   63




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##### Table of Contents



Additional
    Issuances and Preemptive Rights
    
    an aggregate number of shares not exceeding 50% of the number of
    shares outstanding at the time of the general meeting; and
    loans convertible into an aggregate number of shares not
    exceeding 50% of the number of shares outstanding at the time of
    the general meeting.      non-U.S. holders
    
    that we could otherwise distribute as dividends; or
    that we may create by transferring funds from our share premium
    reserve discussed below under  Dividends and
    Legal Reserves to share capital.      three-for-one
  Dividends
    and Legal Reserves
     64




---



##### Table of Contents



Examination
    of PGS and its Accounts
    Rights
    upon
    Winding-Up
  winding-up
  Interested
    Director Transactions
    Other
    Provisions Relating to Directors
      Mandatory
    Bid Requirement
    
    the highest price paid by the offeror for the shares in the
    six-month period prior to the date the 40% threshold was
    exceeded; or
    the recorded market price at that date.       65




---



##### Table of Contents



Sale
    of All or Substantial Part of Our Property or
    Assets
      Compulsory
    Acquisition (Squeeze Out/Sell Out Right)
    Exchange
    Controls and Other Limitations Affecting Security
    Holders
      Material
    Contracts
    Demerger
    of our Former Production Business
    Shipbuilding
    Contracts for New Ramform Vessels
  Ramform Sovereign
 66




---



##### Table of Contents



Share
    Bonus Plan
    Stock
    Option Plan
    Employment
    Contract with CEO and CEO Bonus Scheme
        Credit
    Facility
    Sale
    of Pertra
   67




---



##### Table of Contents



Taxation
  General
          Taxation
    of Dividends
       68




---



##### Table of Contents



non-U.S. corporation
  121-day
    U.S.-source
 69




---



##### Table of Contents



U.S.-source U.S.-source
  U.S.-source U.S.-source
  31-day
  Taxation
    of Ordinary Dispositions
     70




---



##### Table of Contents



U.S.-source
  85-day
  31-day
    U.S. Backup
    Withholding
    Gift
    and Estate Tax
    Norwegian
    Transfer Tax
    Norwegian
    Inheritance Tax
   71




---



##### Table of Contents



Norwegian
    Property Taxes or Similar Taxes
      Documents
    on Display
    Subsidiary
    Information
    ITEM 11.
    Quantitative
    and Qualitative Disclosures About Market Risk    Interest
    Rate Risk
    72




---



##### Table of Contents



2007


2008


2009


2010


2011


Thereafter(In thousands of dollars)Debt:Fixed rate

$
12,900


$
14,040


$
15,160


$
20,941


$
17,480-



Weighted average interest rate


8.28
%


8.28
%


8.28
%


8.65
%


8.28
%


Variable rate

$
6,893


$
7,025


$



$



$



$
243,625Interest rate


LIBOR
*


LIBOR
*


LIBOR
*


LIBOR
*


LIBOR
*


LIBOR
*+ applicable margin**Interest rate swaps:Notional amounts (variable to
    fixed)





$
150,000






$
25,000 average pay rate (fixed)






4.84
%






4.88
% average receive rate
    (variable)






3M LIBOR







3M LIBOR     *
    
    Under our credit agreement, we have the option of
    selecting 1, 2, 3 or 6 month LIBOR rates.**
    
    See Note 17 of the consolidated financial statements
    included in Item 18 of this annual report for a description
    of how the applicable margin is determined under our credit
    agreement.       73




---



##### Table of Contents



Foreign
    Currency Exchange Rate Risk
            Commodity
    risk
    ITEM 12.
    Description
    of Securities Other Than Equity Securities   74




---



##### Table of Contents



PART II  ITEM 13.
    Defaults,
    Dividend Arrearages and Delinquencies    ITEM 14.
    Material
    Modifications to the Rights of Security Holders and Use of
    Proceeds    ITEM 15.
    Controls
    and Procedures  Disclosure
    Controls and Procedures
  Rule 13a-15(b)
  Changes
    in Our Internal Control over Financial Reporting
    Managements
    Report on Internal Control over Financial Reporting
  Rule 13a-15(f)
    Internal Control  Integrated
    Framework
 75




---



##### Table of Contents



Attestation
    Report of Independent Registered Public Accounting
    Firm
  The Board
    of Directors and Shareholders of Petroleum Geo-Services
    ASA
           76




---



##### Table of Contents



Ernst &
    Young AS
    ITEM 16A.  Audit
    Committee Financial Expert  Form 20-F,
 ITEM 16B.  Code
    of Ethics  www.pgs.com.
 ITEM 16C.  Principal
    Accountant Fees and Services    
    pre-approving all auditing services and permitted non-audit
    services to be provided by our independent registered public
    accounting firm and observing applicable limitations on engaging
    the independent registered public accounting firm to perform the
    specific non-audit services restricted by law or
    regulations; and
    to the extent it deems necessary or appropriate, retaining and
    compensating independent legal, accounting or other advisors.  de minimis
  out-of-pocket
  Years Ended December 31,2006


2005


2004(In thousands)Audit fees(a)

$
5,092


$
4,112


$
4,453Audit-related fees(b)


1,421



163



42Fees for tax services(c)


188



175



134All other fees






4



Total

$
6,701


$
4,454


$
4,629  77




---



##### Table of Contents



(a)
    
    Audit fees consisted of fees for audit services, which related
    to the consolidated audit, statutory audits, accounting
    consultations, subsidiary audits and related matters, and fees
    for audit of fresh-start reporting. Audit fees for 2004 have
    been updated to reflect fees incurred in 2005 after May 3,
    2005 related to the 2004 audit.(b)
    
    Audit-related fees consisted of fees for agreed upon procedures
    and other attestation services, including restructuring and fees
    related to Sarbanes-Oxley Act Section 404 (in 2005 and
    2004).(c)
    
    Fees for tax services consisted of fees for tax services, tax
    filing and compliance. ITEM 16D.  Exemptions
    from the Listing Standards for Audit Committees   ITEM 16E.  Purchases
    of Equity Securities by the Issuer and Affiliated
    Purchasers    PART
    III
  ITEM 17.
    Financial
    Statements    ITEM 18.
    Financial
    Statements  Index to
    Consolidated Financial Statements
  PageConsolidated Financial
    Statements of Petroleum Geo-Services ASA and
    SubsidiariesReport of Independent Registered
    Public Accounting Firm


F-2Consolidated Balance Sheets as of
    December 31, 2006 and 2005


F-3Consolidated Statements of
    Operations for the years ended December 31, 2006, 2005 and
    2004


F-4Consolidated Statements of Cash
    Flows for the years ended December 31, 2006, 2005 and 2004


F-5Consolidated Statements of Changes
    in Shareholders Equity for the years ended
    December 31, 2006, 2005 and 2004


F-6Notes to Consolidated Financial
    Statements


F-8    78




---



##### Table of Contents



ITEM 19.  Exhibits  ExhibitNumber



Description1
.1



Articles of Association, as
    amended (unofficial English translation)2
.1



Deposit Agreement, dated as of
    May 25, 1993, among Petroleum Geo-Services ASA (the
    Company), Citibank, N.A., as depositary (the
    Depositary), and all holders from time to time of
    American Depositary Receipts issued thereunder (incorporated by
    reference to Exhibit(a)(1) of Post-Effective Amendment
    No. 1 to the Companys Registration Statement on
    Form F-6
    (Registration
    No. 33-61500))2
.2



First Amendment to Deposit
    Agreement, dated as of April 24, 1997, among the Company,
    the Depositary and all holders from time to time of American
    Depositary Receipts issued thereunder (incorporated by reference
    to Exhibit(a)(2) of the Companys Registration Statement on
    Form F-6
    (Registration
    No. 333-10856))2
.3



Form of American Depositary
    Receipt (incorporated by reference to filing under
    Rule 424(b)(3) relating to the Companys Registration
    Statements on
    Form F-6
    (Registration
    No. 333-122046))   Form 20-F,
  4
.1



Demerger Plan of 27 March
    2006 for the demerger of the Company as Transferor with
    Petrojarl as Transferee (incorporated by reference to
    Exhibit 99.1 to the Companys Report on
    Form 6-K
    filed March 28, 2006)4
.2



Credit Agreement, dated as of
    December 16, 2005, among the Company, certain of its
    subsidiaries and the lender parties thereto (incorporated by
    reference to Exhibit 4.3 of the annual report of the
    Company on
    Form 20-F
    for the year ended December 31, 2005 (SEC File
    No. 1-14614
    (the 2005
    Form 20-F))).4
.3



Shipbuilding Contract, dated as of
    April 27, 2006, between PGS Geophysical AS and Aker
    Langsten AS4
.4



Shipbuilding Contract, dated as of
    September 30, 2006, between PGS Geophysical AS and Aker
    Yards AS8
.1



Subsidiaries (included in
    Item 4 of this annual report)11
.1



Code of Conduct (incorporated by
    reference to Exhibit 11.1 of the annual report of the
    Company on
    Form 20-F
    for the year ended December 31, 2004 (SEC File
    No. 1-14614
    (the 2004
    Form 20-F))).12
.1



Certification of Chief Executive
    Officer pursuant to Section 302 of the Sarbanes-Oxley Act
    of 2002 and
    Rule 13a-14(a)
    of the Securities Exchange Act of 193412
.2



Certification of Chief Financial
    Officer pursuant to Section 302 of the Sarbanes-Oxley Act
    of 2002 and
    Rule 13a-14(a)
    of the Securities Exchange Act of 193413
.1



Certification of the Chief
    Executive Officer and the Chief Financial Officer pursuant to
    Section 906 of the Sarbanes-Oxley Act of 2002 and
    Rule 13a-14(b)
    of the Securities Exchange Act of 193415
.1



Audit Committee Charter
    (incorporated by reference to Exhibit 15.1 of the 2004
    Form 20-F)15
.2



Consent of Ernst & Young
    AS  79




---



##### Table of Contents



SIGNATURES
  Form 20-F
    By:
    /s/  GOTTFRED
    LANGSETH   Chief Financial Officer
   80




---



##### Table of Contents



INDEX TO
    CONSOLIDATED FINANCIAL STATEMENTS
  PageConsolidated Financial
    Statements of Petroleum Geo-Services ASA and
    SubsidiariesReport of
    Independent Registered Public Accounting Firm


F-2Consolidated
    Balance Sheets as of December 31, 2006 and 2005


F-3Consolidated
    Statements of Operations for the years ended December 31,
    2006, 2005 and 2004


F-4Consolidated
    Statements of Cash Flows for the years ended December 31,
    2006, 2005 and 2004


F-5Consolidated
    Statements of Changes in Shareholders Equity for the years
    ended December 31, 2006, 2005 and 2004


F-6Notes to
    Consolidated Financial Statements


F-8  F-1




---



##### Table of Contents



REPORT OF
    INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM           Employers Accounting for Defined
    Benefit Pension and Other Postretirement Plans.
    Ernst &
    Young AS
    F-2




---



##### Table of Contents



PETROLEUM
    GEO-SERVICES ASA AND SUBSIDIARIES
  CONSOLIDATED
    BALANCE SHEETS
  December 31,2006


2005(In thousands of dollars)ASSETSCash and cash equivalents

$
123,983


$
121,464Restricted cash


8,711



12,484Shares available for sale and
    investment in securities


5,296



13,222Accounts receivable, net


194,587



183,116Unbilled and other receivables


113,006



64,703Other current assets


72,086



55,602Current deferred tax assets


75,000



Assets of discontinued operations






662,897Total current assets


592,669



1,113,488Property and equipment, net


473,320



378,140Multi-client library, net


49,406



146,171Restricted cash


10,014



10,014Long-term deferred tax assets


75,000



20,000Other long-lived assets


24,261



27,601Other intangible assets, net


1,083



22,158Total assets

$
1,225,753


$
1,717,572LIABILITIES AND
    SHAREHOLDERS EQUITYShort-term debt and current
    portion of long-term debt

$
13,027


$
24,406Current portion of capital lease
    obligations


6,893



20,495Accounts payable


84,521



59,367Accrued expenses


189,132



136,679Income taxes payable


64,261



26,318Current deferred tax liabilities


13,313



1,055Debt and other liabilities of
    discontinued operations






104,398Total current liabilities


371,147



372,718Long-term debt


311,246



922,134Long-term capital lease obligations


7,025



13,205Long-term deferred tax liabilities






497Other long-term liabilities


91,487



78,958Total liabilities


780,905



1,387,512Minority interest in consolidated
    subsidiaries






785Shareholders equity:Common stock: par value NOK 3;
    authorized 198,000,000 shares; issued and outstanding
    180,000,000 shares at December 31, 2006 and
    60,000,000 shares authorized, issued and outstanding, par
    value NOK 10, at December 31, 2005


78,208



85,714Additional paid-in capital


372,095



277,427Accumulated earnings (deficit)


9,673



(32,105
)Accumulated other comprehensive
    (loss)


(15,128
)


(1,761
)Total shareholders equity


444,848



329,275Total liabilities and
    shareholders equity

$
1,225,753


$
1,717,572    F-3




---



##### Table of Contents



PETROLEUM
    GEO-SERVICES ASA AND SUBSIDIARIES
  CONSOLIDATED
    STATEMENTS OF OPERATIONS
  Years Ended December 31,2006


2005


2004(In thousands of dollars, except share data)Revenues

$
1,308,459


$
888,021


$
707,519Cost of sales(a)


620,717



498,300



426,705Depreciation and amortization


198,605



208,581



284,835Research and development costs


17,747



9,918



3,419Selling, general and
    administrative costs(a)


61,460



55,394



52,757Impairment of long-lived assets






4,575



Loss on sale of subsidiary






1,520



Other operating (income) expense,
    net






(20,502
)


8,112Total operating expenses


898,529



757,786



775,828Operating profit (loss)


409,930



130,235



(68,309
)Other income (expense):Income from associated companies


10



33



(54
)Interest expense


(53,219
)


(95,840
)


(108,125
)Debt redemption and refinancing
    costs






(107,315
)


Other financial items, net


(637
)


4,253



(6,219
)356,084



(68,634
)


(182,707
)Reorganization items:Cost of reorganization










(3,498
)Income (loss) before income tax
    expense and minority interest


356,084



(68,634
)


(186,205
)Income tax expense


123,698



24,398



23,490Minority interest


3,006



4,038



651Income (loss) from continuing
    operations


229,380



(97,070
)


(210,346
)Income from discontinued
    operations, net of tax


69,197



209,648



75,616Net income (loss)

$
298,577


$
112,578


$
(134,730
)Basic and diluted income (loss)
    from continuing operations per share(b)

$
1.27


$
(0.54
)

$
(1.16
)Basic and diluted income from
    discontinued operations, net of tax, per share


0.39



1.17



0.41Basic and diluted net income
    (loss) per share(b)

$
1.66


$
0.63


$
(0.75
)Weighted average basic and diluted
    shares outstanding(b)(c)


180,000,000



180,000,000



180,000,000     (a)
    
    Excluding depreciation and amortization, which are shown
    separately.(b)
    
    Options equivalent to 2,085,000 shares were excluded from
    the calculation of diluted earnings per share for 2006, as they
    were not dilutive.(c)
    
    Previously reported earnings per share and total number of
    outstanding shares have been adjusted to reflect the
    three-for-one
    share split effective December 13, 2006.   F-4




---



##### Table of Contents



PETROLEUM
    GEO-SERVICES ASA AND SUBSIDIARIES
  CONSOLIDATED
    STATEMENTS OF CASH FLOWS
  Years Ended December 31,2006


2005


2004(In thousands of dollars)Cash flows (used in) provided
    by operating activities:Net income (loss)

$
298,577


$
112,578


$
(134,730
)Adjustments to reconcile net
    income (loss) to net cash provided by operating activities:Depreciation and amortization,
    continuing operations


198,605



208,581



284,835Depreciation and amortization,
    discontinued operations


21,970



50,774



83,527Exploration costs (dry well
    expensed)










11,438Non-cash impairments, net gain on
    sale of subsidiaries and shares


(66,749
)


(151,807
)


Non-cash other operating (income)
    expense, net






(26,095
)


Premium on debt redemption and
    cost of refinancing expensed






107,315



Provision for deferred income taxes


62,547



10,965



27,263(Gain) loss on sale of assets


(4,019
)


1,893



4,128Net (increase) decrease in cash
    related to discontinued operations


2,010



208



(322
)Net decrease in restricted cash


3,773



1,134



15,968Other items


9,533



(36
)


(352
)Increase in accounts receivable,
    net


(10,105
)


(52,338
)


(33,577
)(Increase) decrease in unbilled
    and other receivables


(59,108
)


(21,893
)


7,303(Increase) decrease in other
    current assets


(20,775
)


(7,453
)


2,104(Increase) decrease in other
    long-lived assets


7,418



7,738



(3,182
)Increase (decrease) in accounts
    payable


17,744



(7,625
)


25,592Increase (decrease) in accrued
    expenses and income taxes payable


93,194



64,519



(15,496
)Increase (decrease) in other
    long-term liabilities


8,798



(17,744
)


7,873Net cash provided by operating
    activities


563,413



280,714



282,372Cash flows (used in) provided
    by investing activities:Investment in multi-client library


(113,658
)


(55,667
)


(41,140
)Capital expenditures


(165,442
)


(90,376
)


(62,393
)Capital expenditures on
    discontinued operations


(35,018
)


(114
)


(85,979
)Proceeds from sales of
    subsidiaries/demerger, net


406,816



153,698



2,035Other items, net


3,898



1,300



4,031Net cash provided by (used in)
    investing activities


96,596



8,841



(183,446
)Cash flows (used in) provided
    by financing activities:Proceeds from issuance of
    long-term debt






850,000



Repayment of long-term debt


(619,720
)


(1,009,152
)


(24,167
)Principal payments under capital
    leases


(20,464
)


(25,700
)


(22,930
)Net increase (decrease) in bank
    facility and short-term debt


(2,547
)


712



1,962Termination fee, UK leases


(14,759
)






Premium on debt redemption,
    deferred loan costs and reorganization fees






(116,813
)


(3,488
)Distribution to creditors under
    the restructuring agreement










(22,660
)Net cash (used in) financing
    activities


(657,490
)


(300,953
)


(71,283
)Effect of exchange rate changes on
    cash






(80
)


74Net increase (decrease) in cash
    and cash equivalents


2,519



(11,478
)


27,717Cash and cash equivalents at
    beginning of period


121,464



132,942



105,225Cash and cash equivalents at end
    of period

$
123,983


$
121,464


$
132,942     F-5




---



##### Table of Contents



PETROLEUM
    GEO-SERVICES ASA AND SUBSIDIARIES
  CONSOLIDATED
    STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY
  AccumulatedAdditional


Accumulated


OtherCommon Stock


Paid-In


Earnings


Comprehensive


ShareholdersNumber


Par value


Capital


(Deficit)


Income (Loss)


Equity(In thousands of dollars, except for share data)Balance at December 31, 2003


20,000,000


$
85,714


$
277,427


$
(9,953
)

$
446


$
353,634Comprehensive income (loss):Net loss














(134,730
)






(134,730
)Other comprehensive income


















4,003



4,003Total comprehensive income (loss)














(134,730
)


4,003



(130,727
)Balance at December 31, 2004


20,000,000



85,714



277,427



(144,683
)


4,449



222,907Share split June 8, 2005


40,000,000Comprehensive income (loss):Net income














112,578







112,578Other comprehensive (loss)


















(6,210
)


(6,210
)Total comprehensive income (loss)














112,578



(6,210
)


106,368Balance at December 31, 2005


60,000,000



85,714



277,427



(32,105
)


(1,761
)


329,275Demerger Petrojarl June 29,
    2006






(17,143
)


(31,558
)


(192,267
)


(931
)


(241,899
)Tax effect on internal gain
    (demerger)














(64,532
)






(64,532
)Share capital conversion,
    December 13, 2006






9,637



(9,637
)










Share split December 13, 2006


120,000,000Benefit realized from pre-
    restructuring deferred tax assets










133,561











133,561Employee share options










2,302











2,302Comprehensive income (loss):Net income














298,577







298,577Adoption SFAS No. 158
    Defined benefit plans


















(12,249
)


(12,249
)Other comprehensive (loss)


















(187
)


(187
)Total comprehensive income (loss)














298,577



(12,436
)


286,141Balance at December 31, 2006


180,000,000


$
78,208


$
372,095


$
9,673


$
(15,128
)

$
444,848    F-6




---



##### Table of Contents



Net Foreign


Net


Net





Unrecognized


AccumulatedCurrency


Unrealized


Gain (Loss)


Pension


Gain (Loss) and


OtherTranslation


Gain (Loss)


Cash Flow


Minimum


Prior Period


ComprehensiveAdjustments


Investments


Hedges


Liability


Service Costs


Income (Loss)(In thousands of dollars)Balance at December 31, 2003

$
446


$



$



$



$



$
446Year ended December 31, 2004


(1,667
)


5,889







(219
)






4,003Balance at December 31, 2004


(1,221
)


5,889







(219
)






4,449Year ended December 31, 2005


(2,534
)


(1,837
)


(1,628
)


(211
)






(6,210
)Balance at December 31, 2005


(3,755
)


4,052



(1,628
)


(430
)






(1,761
)Demerger Petrojarl June 29,
    2006


(1,142
)










211







(931
)Adoption SFAS No. 158
    Defined benefit plans


















(12,249
)


(12,249
)Year ended December 31, 2006


(429
)


(2,510
)


2,533



219







(187
)Balance at December 31, 2006

$
(5,326
)

$
1,542


$
905


$



$
(12,249
)

$
(15,128
)    F-7




---



##### Table of Contents



PETROLEUM
    GEO-SERVICES ASA AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
  NOTE 1 
    General Information about the Company and Basis of
    Presentation
              90-7, Financial Reporting by Entities in Reorganization under
    the Bankruptcy Code,
 F-8




---



##### Table of Contents



PETROLEUM
    GEO-SERVICES ASA AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   Subsequent
    Event.
  Ramform
    Victory four-to-ten Ramform Victory
      NOTE 2 
    Summary of Significant Accounting Policies
  Consolidation
    and Equity Investments.
      other-than-temporary.
    Variable
    Interest Entities (VIEs).
    Consolidation of Variable Interest Entities.
 F-9




---



##### Table of Contents



PETROLEUM
    GEO-SERVICES ASA AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Discontinued
    Operations.
    Use of
    Estimates.
    Cash
    and Cash Equivalents.
      Foreign
    Currency Translation.
    non-U.S. subsidiaries
  Operating
    and Capital Leases.
     F-10




---



##### Table of Contents



PETROLEUM
    GEO-SERVICES ASA AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   UK
    Leases.
  Ramform Viking Ramform Vanguard
      89-20, Accounting for Cross Border Tax Benefit
    Leases,
    Ramform
    Challenger Ramform Challenger Ramform
    Viking Ramform Vanguard Ramform Victory Ramform Valiant Ramform Victory
 F-11




---



##### Table of Contents



PETROLEUM
    GEO-SERVICES ASA AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
     Concentration
    of Credit Risk.
      Pension
    Obligations.
    Employers Accounting for Defined Benefit Pension
    and Other Postretirement Plans
    
    recognized in net periodic benefit cost over the estimated
    average remaining service period if the change in plan has
    retrospective effect and is conditional upon future
    employment, or
    recognized immediately if the change in plan has retrospective
    effect but is not conditional upon future employment.   F-12




---



##### Table of Contents



PETROLEUM
    GEO-SERVICES ASA AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
     Property
    and Equipment.
      YearsSeismic vessels

20-25Seismic and operations computer
    equipment

3-15Buildings and related leasehold
    improvements

1-17Fixture, furniture, fittings and
    office computers

3-5       Multi-Client
    Library.
      and/or
 F-13




---



##### Table of Contents



PETROLEUM
    GEO-SERVICES ASA AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
        % of Total Cost(a)5-Year


3-YearCalendar Year after Project Completion:

Profile


ProfileYear 0(b)


100
%


100
%Year 1


80
%


66
%Year 2


60
%


33
%Year 3


40
%


0
%Year 4


20
%Year 5


0
%     (a)
    
    All Marine and Onshore multi-client projects have a
    5-year
    profile starting in the year after project completion. All
    derivative projects have a
    3-year
    profile starting in the year after data delivery.(b)
    
    Represents the year in which the survey is classified as
    completed.    Other
    Intangible Assets.
   F-14




---



##### Table of Contents



PETROLEUM
    GEO-SERVICES ASA AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   Deferred
    Debt Issue Costs and Long-Term Receivables.
    Impairment
    of Multi-Client Library.
  Accounting for the Impairment
    or Disposal of Long-Lived Assets
    Impairment
    of Long-Lived Assets (excluding Multi-Client
    Library).
    Steaming
    and Mobilization.
    Derivative
    Financial Instruments.
  Accounting for
    Derivative Instruments and Hedging Activities
 F-15




---



##### Table of Contents



PETROLEUM
    GEO-SERVICES ASA AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
        
    Fair value hedges:  The change in fair value of
    the hedging instrument is recognized in the consolidated
    statements of operations under other financial items, net. The
    change in fair value of the hedged item attributable to the risk
    hedged is recorded as part of the carrying value of the hedged
    item and is also recognized in the consolidated statements of
    operations under other financial items, net. When an
    unrecognized firm commitment is designated as a hedged item, the
    subsequent cumulative change in fair value of the firm
    commitment attributable to the hedged risk is recognized as an
    asset or liability with a corresponding gain or loss recognized
    in the consolidated statements of operations.
    Cash flow hedges:  The effective portion of the
    gain or loss on the hedging instrument is recognized directly in
    equity, while any ineffective portion is recognized immediately
    in the consolidated statements of operations under other
    financial items, net. Amounts recorded to equity are transferred
    to the consolidated statements of operations when the hedged
    transaction affects the consolidated statements of operations.      Revenue
    Recognition.
  00-21 Revenue Arrangement with
 F-16




---



##### Table of Contents



PETROLEUM
    GEO-SERVICES ASA AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Multiple Deliverables.
  (a) Sales
    of Multi-Client Library Data.
  Late sales
  Volume sales agreements
    Pre-funding arrangements
    (b) Proprietary
    Sales/Contract Sales.
    (c) Other
    Services.
    Income
    Taxes.
   F-17




---



##### Table of Contents



PETROLEUM
    GEO-SERVICES ASA AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Accounting for
    Income Taxes  Special Areas,
      Asset
    Retirement Obligations.
  Accounting for Conditional Asset Retirement
    Obligations Accounting for Asset
    Retirement Obligations and/or
  Accounting for Asset Retirement
    Obligations (SFAS 143)
  Commitments
    and Contingencies.
    Employee
    Share Options.
   F-18




---



##### Table of Contents



PETROLEUM
    GEO-SERVICES ASA AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      New
    Accounting Standards.
  SFAS No. 123-R Share-Based Payment
    (SFAS 123-R)
  Accounting Changes and Error Corrections  a
    replacement of APB Opinion No. 20 and FASB Statement
    No. 3
  Considering the Effects of
    Prior Year Misstatements when Quantifying Misstatements in
    Current Year Financial Statements
    Accounting for Uncertainty in Income Taxes, Accounting for Income Taxes
  Fair Value Measurement
 F-19




---



##### Table of Contents



PETROLEUM
    GEO-SERVICES ASA AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   The Fair Value Option for Financial Assets and
    Financial Liabilities
  NOTE 3 
    2003 Financial Restructuring and Fresh-Start Reporting
  Background
    of Restructuring.
    Fresh-Start
    Reporting.
  SOP 90-7. SOP 90-7
    NOTE 4 
    Loss on Sale of Subsidiary
      NOTE 5 
    Impairment of Long-Lived Assets and Other Operating (Income)
    Expense, Net
   F-20




---



##### Table of Contents



PETROLEUM
    GEO-SERVICES ASA AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
     Years Ended December 31,2005


2004(In thousands of dollars)Release of contingent liability re
    UK lease (Note 21)

$
(11,655
)

$
Gain on claim relating to
    equipment deliveries


(8,847
)


Cost of employees termination and
    reorganization






665Cost relating to completion of
    2002 US GAAP accounts and re-audit of 2001






7,447Total

$
(20,502
)

$
8,112     NOTE 6 
    Shares Available for Sale and Investments in
    Securities
      NOTE 7 
    Accounts Receivable, Net
    December 31,2006


2005(In thousands of dollars)Accounts receivable 
    trade

$
196,141


$
185,652Allowance for doubtful accounts


(1,554
)


(2,536
)Total

$
194,587


$
183,116     December 31,2006


2005


2004(In thousands of dollars)Beginning balance

$
2,536


$
1,492


$
3,444New and additional allowances


185



2,067



1,001Write-offs and reversals


(1,167
)


(1,023
)


(2,953
)Ending balance

$
1,554


$
2,536


$
1,492  F-21




---



##### Table of Contents



PETROLEUM
    GEO-SERVICES ASA AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  NOTE 8 
    Other Current Assets
    December 31,2006


2005(In thousands of dollars)Withholding taxes and taxes
    receivable

$
24,246


$
13,588Spare parts, consumables and
    supplies


18,983



14,903Prepaid operating expenses


12,620



13,842Prepaid reinsurance


6,572



6,572Unrealized gain forward exchange
    contracts (Note 20)


5,706



Assets of business transferred
    under a contractual arrangement (Notes 4 and 25)






3,504Other


3,959



3,193Total

$
72,086


$
55,602   NOTE 9 
    Property and Equipment, Net
    December 31,2006


2005(In thousands of dollars)Construction in progress

$
64,105


$
Seismic vessels and equipment


602,234



507,607Fixtures, furniture and fittings


37,955



27,159Buildings and other


7,754



6,601Gross purchase costs


712,048



541,367Accumulated depreciation and
    impairment


(238,728
)


(163,227
)Property and equipment, net

$
473,320


$
378,140     Ramform Viking Ramform Vanguard
   F-22




---



##### Table of Contents



PETROLEUM
    GEO-SERVICES ASA AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
         Years Ended December 31,2006


2005


2004(In thousands of dollars)Depreciation expense, net of
    amounts capitalized into multi-client library

$
(69,355
)

$
(68,970
)

$
(68,959
)Depreciation expense capitalized
    into multi-client library


(8,032
)


(5,415
)


(3,982
)Interest capitalized into
    construction in progress


1,259







       NOTE 10 
    Multi-Client Library, Net
    December 31,2006


2005(In thousands of dollars)Completed surveys:Completed during 1999, and prior
    years

$



$
6,251Completed during 2000






5,881Completed during 2001






66,626Completed during 2002






18,785Completed during 2003






14,859Completed during 2004


1,263



4,347Completed during 2005


3,109



7,746Completed during 2006


5,066



Completed surveys


9,438



124,495Surveys in progress


39,968



21,676Multi-client library

$
49,406


$
146,171  F-23




---



##### Table of Contents



PETROLEUM
    GEO-SERVICES ASA AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Years Ended December 31,2006


2005


2004(In thousands of dollars)Amortization expense

$
(126,242
)

$
(134,469
)

$
(208,468
)Interest capitalized into
    multi-client library


1,564



1,878



1,461Depreciation capitalized into
    multi-client library


8,032



5,415



3,982Reduction of deferred tax asset
    valuation allowance (Note 22)


(92,706
)


(25,312
)


       Minimum FutureAmortizations(In thousands ofdollars)During 2007

$
4,609During 2008


9,764During 2009


12,541During 2010


10,255During 2011


12,237Future minimum amortization

$
49,406   survey-by-survey
   F-24




---



##### Table of Contents



PETROLEUM
    GEO-SERVICES ASA AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   NOTE 11 
    Other Long-Lived Assets
    December 31,2006


2005(In thousands of dollars)Long-term receivables

$
13,367


$
16,893Unrealized gain forward exchange
    contracts (Note 20)


3,773



Deferred debt issue costs


3,734



9,787Oil and natural gas assets, net


2,004



639Investments in associated
    companies (Note 12)


1,383



282Total

$
24,261


$
27,601     NOTE 12 
    Investments in Associated Companies
    Years Ended December 31,2006


2005


2004(In thousands of dollars)Corporations and limited
    partnerships:Geo Explorer AS

$
6


$
(2
)

$
26Atlantic Explorer (IoM) Ltd.


(1
)


(5
)


(80
)General partnerships


5



40



Total

$
10


$
33


$
(54
)    F-25




---



##### Table of Contents



PETROLEUM
    GEO-SERVICES ASA AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
     OwnershipPaid-In








PercentBook Value


Share of


Capital/


Equity


Book Value


as ofDecember 31,


Income


(Dividends)


Transactions


December 31,


December 31,2005


2006


2006


2006(a)


2006


2006(In thousands of dollars)Corporations and limited
    partnerships:Geo Explorer AS

$
165


$
6


$
(171
)

$



$




b
)Atlantic Explorer (IoM) Ltd.


24



(1
)






1



24



50.0
%Valiant International Petroleum
    Ltd.


68















68



1.0
%Genesis Petroleum Europe Ltd.










1,258







1,258



50.0
%General partnerships


25



5







3



33Total

$
282


$
10


$
1,087


$
4


$
1,383     (a)
    
    Includes foreign currency translation differences.(b)
    
    Sold in March 2006.  NOTE 13 
    Other Intangible Assets, Net
    December 31,2006


2005(In thousands of dollars)Licenses

$
1,882


$
1,687Existing technology






29,329Order backlog






5,401Total cost


1,882



36,417Accumulated amortization


(799
)


(14,259
)Total

$
1,083


$
22,158      F-26




---



##### Table of Contents



PETROLEUM
    GEO-SERVICES ASA AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
     Years Ended December 31,2006


2005


2004(In thousands of dollars)Amortization expense

$
(2,468
)

$
(5,130
)

$
(6,847
)Reduction of deferred tax asset
    valuation allowance (Note 22)


(19,050
)


(1,219
)


(2,463
)     NOTE 14 
    Accrued Expenses
    December 31,2006


2005(In thousands of dollars)Accrued employee payroll

$
52,615


$
31,654Customer advances and deferred
    revenue


30,749



29,137Accrued vessel operating expenses


24,021



16,484Accrued sales tax and VAT


19,163



5,245Accrued commissions


10,664



7,550Accrued operating
    expenses  land crews


9,972



4,911Accrued legal, audit and
    consulting fee


7,817



2,747Accrued interest expenses


5,560



5,258Received, not invoiced, property
    and equipment


3,674



7,967Unrealized loss forward exchange
    contracts (Note 20)


1,606



7,234Accrued severance


14



27Liabilities of business
    transferred under a contractual arrangement (Notes 4 and 25)






3,504Other


23,277



14,961Total

$
189,132


$
136,679     Years Ended December 31,2006


2005


2004(In thousands of dollars)Beginning balance

$
27


$
290


$
5,061Additional and adjustment of
    allowances






(40
)


(632
)Severance and restructuring costs
    paid


(13
)


(223
)


(4,139
)Ending balance

$
14


$
27


$
290  F-27




---



##### Table of Contents



PETROLEUM
    GEO-SERVICES ASA AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  NOTE 15 
    Other Long-Term Liabilities
    December 31,2006


2005(In thousands of dollars)Pension liability (Note 23)

$
53,867


$
39,792Tax contingencies


21,966



19,184Accrued liabilities UK leases
    (Note 21)


6,111



14,865Fair value adjustment of firm
    commitments(a)


4,469



Unrealized loss forward exchange
    contracts (Note 20)


906



1,628Asset retirement obligations
    (ARO) (Note 2)






335Other


4,168



3,154Total

$
91,487


$
78,958     (a)
    
    Fair value change in hedged firm commitments related to currency
    fluctuations from inception of the hedging relationships
    (related to construction of the Ramform 7 and 8 (see
    Note 9)).    December 31,2006


2005


2004(In thousands of dollars)Balance at beginning of period

$
335


$
350


$
318Liabilities settled in the period


(335
)


(15
)


Revision in estimated cash
    flow/fair value










32Balance at end of period

$



$
335


$
350   Bergen Surveyor
  sub-sea Ramform
    Banff.
  NOTE 16 
    Short-Term Debt and Current Portion of Long-Term Debt
    December 31,2006


2005(In thousands of dollars)Short-term debt (see Note 17)

$
127


$
2,674Current portion of long-term debt
    (see Note 17)


12,900



21,732Total

$
13,027


$
24,406  F-28




---



##### Table of Contents



PETROLEUM
    GEO-SERVICES ASA AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  NOTE 17 
    Debt
  Long-Term
    Debt.
    December 31,2006


2005(In thousands of dollars)Unsecured:10% Senior Notes, due 2010

$
4,511


$
4,624Secured:Term loan, due 2012, Libor +
    margin (see below)


243,625



850,0008.28% First Preferred Mortgage
    Notes, due 2011


76,010



87,930Other loans, due 2006






1,312Total debt


324,146



943,866Less current portion


(12,900
)


(21,732
)Total long-term debt

$
311,246


$
922,134     December 31,2006(In thousands ofdollars)Year of repayment:2007

$
12,9002008


14,0402009


15,1602010


20,9412011


17,480Thereafter


243,625Total

$
324,146      F-29




---



##### Table of Contents



PETROLEUM
    GEO-SERVICES ASA AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
        Ramform Explorer Ramform Challenger Ramform Explorer Ramform Challenger
  Bank
    Credit Facilities.
     F-30




---



##### Table of Contents



PETROLEUM
    GEO-SERVICES ASA AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   Short-Term
    Debt.
    Covenants.
    
    total leverage ratio may not exceed 3.00 to 1.0,
    consolidated interest coverage ratio (defined as the ratio of
    consolidated EBITDA less multi-client investments to
    consolidated interest expense) must be at least 3.0 to
    1.0, and
    consolidated fixed charge coverage ratio (defined as the ratio
    of consolidated EBITDA less multi-client investments to
    consolidated fixed charges) must be at least 1.3 to 1.0.      Pledged
    Assets.
    Letters
    of Credit and Guarantees.
    NOTE 18 
    Interest Expense
    Years Ended December 31,2006


2005


2004(In thousands of dollars)Interest expense, gross

$
(56,042
)

$
(97,718
)

$
(109,586
)Interest capitalized in
    multi-client library (Note 10)


1,564



1,878



1,461Interest capitalized in
    construction in progress (Note 9)


1,259







Total interest expense

$
(53,219
)

$
(95,840
)

$
(108,125
)    F-31




---



##### Table of Contents



PETROLEUM
    GEO-SERVICES ASA AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   NOTE 19 
    Other Financial Items, Net
    Years Ended December 31,2006


2005


2004(In thousands of dollars)Interest income

$
8,758


$
6,696


$
3,307Foreign currency gain (loss)


3,604



1,194



(3,202
)Expensed deferred loan costs,
    extinguished debt


(5,063
)






UK leases, settlement interest
    rate differential, net (Note 21)


(1,802
)






Additional required interest
    relating to UK leases, net of amortization of deferred UK lease
    gain


(486
)


(986
)


(851
)Consent fee received for certain
    changes to UK leases






3,107



Sale of shares in Aqua Exploration
    Ltd.










1,500Other


(5,648
)


(5,758
)


(6,973
)Total other financial items, net

$
(637
)

$
4,253


$
(6,219
)     NOTE 20 
    Financial Instruments
  Fair
    Values of Financial Instruments.
    December 31, 2006


December 31, 2005Carrying


Notional


Fair


Carrying


Notional


FairAmounts


Amounts


Values


Amounts


Amounts


Values(In thousands of dollars)Long-term debt (Note 17)

$
324,146


$



$
330,070


$
943,866


$



$
947,105Derivatives:Forward exchange contracts, net
    unrealized gain (loss)(a)


6,226



314,158



6,226



(7,234
)


193,536



(7,234
)Interest rate swaps, net
    unrealized gain (loss)(a)


740



175,000



740



(1,628
)


425,000



(1,628
)     (a)
    
    As of December 31, 2006, $5.7 million is included in
    other current asset (Note 8), $3.8 million is included
    in other long-lived assets (Note 11), $1.6 million is
    included in accrued expenses (Note 14) and
    $0.9 million is included in other long-term liabilities
    (Note 15). As of December 31, 2005, $7.2 million
    was included in accrued expenses (Note 14) and
    $1.6 million was included in other long-term liabilities
    (Note 15).     F-32




---



##### Table of Contents



PETROLEUM
    GEO-SERVICES ASA AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Ramform Explorer Ramform Challenger
  Interest
    Rate Exposure.
    Foreign
    Exchange Exposure.
        NOTE 21 
    Commitments and Contingencies
  Leases.
   F-33




---



##### Table of Contents



PETROLEUM
    GEO-SERVICES ASA AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    December 31,2006Operating


CapitalLeases


Leases(In thousands of dollars)2007

$
37,173


$
7,7542008


15,713



7,4002009


11,375



2010


10,546



2011


6,814



Thereafter


17,311



Total

$
98,932



15,154Imputed interest






(1,236
)Net present value of capital lease
    obligations






13,918Current portion of capital lease
    obligations






(6,893
)Long-term portion of capital lease
    obligations





$
7,025       December 31,2006(In thousands ofdollars)Marine seismic and support vessels

$
24,070Onshore seismic and support vessels


3,009Data processing equipment


126Buildings


71,005Other


722Total

$
98,932     Other.
   F-34




---



##### Table of Contents



PETROLEUM
    GEO-SERVICES ASA AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   UK
    Leases.
  Ramforms Challenger, Valiant, Viking, Victory Vanguard. 15-25 years. Ramform Viking Ramform Vanguard
      Ramform Challenger Ramform
    Challenger Ramform
    Viking Ramform Vanguard
     F-35




---



##### Table of Contents



PETROLEUM
    GEO-SERVICES ASA AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      Petrojarl.
    Petrojarl
    Foinaven , Petrojarl Banff
  Petrojarl Foinaven,
  Brazil
    Service Tax Claim.
    Subsequent
    Event.
  Ramform Victory
 F-36




---



##### Table of Contents



PETROLEUM
    GEO-SERVICES ASA AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   NOTE 22 
    Income Taxes
    Years Ended December 31,2006


2005


2004(In thousands of dollars)Current taxes:Norwegian

$



$
519


$
Foreign


63,655



10,343



20,761Deferred taxes:Norwegian


36,509



2,603



Foreign


23,534



10,933



2,729Total income tax expense

$
123,698


$
24,398


$
23,490           Years Ended December 31,2006


2005


2004(In thousands of dollars)Balance at the beginning of the
    period

$
468,040


$
285,432


$
310,660Current year additions (reduction)


(102,542
)


207,573



7,360Decrease of valuation allowance
    from utilization and recognition of pre-reorganization deferred
    tax assets


(138,321
)


(27,115
)


(32,588
)Decrease of valuation allowance
    from utilization of post-reorganization deferred tax assets


(11,679
)






Change related to other
    comprehensive income, sale of subsidiaries and minority interests


67,262



2,150



Balance at the end of the period

$
282,760


$
468,040


$
285,432  F-37




---



##### Table of Contents



PETROLEUM
    GEO-SERVICES ASA AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      SOP 90-7)
   F-38




---



##### Table of Contents



PETROLEUM
    GEO-SERVICES ASA AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
     Years Ended December 31,2006


2005


2004(In thousands of dollars)Income (loss) from continuing
    operations before income taxes, minority interest and cumulative
    effect of change in accounting principles:Norwegian

$
30,290


$
(296,559
)

$
(229,053
)Foreign


325,794



227,925



42,848Total


356,084



(68,634
)


(186,205
)Norwegian statutory rate


28
%


28
%


28
%Expense (benefit) for income taxes
    at statutory rate


99,703



(19,217
)


(52,138
)Increase (reduction) in income
    taxes from:Foreign earnings taxed at other
    than statutory rate


2,272



(4,308
)


(7,356
)Gain (loss) from local currency
    other than reporting currency


(27,755
)


9,032



(9,005
)Non-creditable foreign taxes and
    other permanent items


32,057



(13,862
)


84,629Change in temporary differences to
    intangible assets due to utilization of pre-reorganization
    deferred tax assets (circle effect)


(34,920
)


(8,761
)


Deferred tax asset valuation
    allowance


52,341



61,514



7,360Total income tax expense

$
123,698


$
24,398


$
23,490    F-39




---



##### Table of Contents



PETROLEUM
    GEO-SERVICES ASA AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
     December 31,2006


2005Asset


Liability


Asset


Liability(In thousands of dollars)Current assets and liabilities

$
(12,793
)

$
68,745


$
(3,119
)

$
19,525Property, equipment and other
    long-lived assets


(213,361
)


7,070



(108,897
)


Tax losses carried forward


(308,740
)






(363,420
)


Deferred gain (loss)


(1
)


79,656



(17,119
)


22,527Tax credits


(9,899
)






(3,082
)


Expenses deductible when paid


(35,229
)


3,196



(26,898
)


Other temporary differences


(2,311
)


4,220



(6,003
)


Total deferred tax (assets)
    liabilities before valuation allowance


(582,334
)


162,887



(528,538
)


42,052Deferred tax asset valuation
    allowance


282,760







468,040Deferred tax (assets) liabilities

$
(299,574
)

$
162,887


$
(60,498
)

$
42,052Net deferred tax (assets)
    liabilities  Norwegian






(112,000
)






(20,000
)Net deferred tax (assets)
    liabilities  Foreign






(24,687
)






1,552Net deferred tax (assets)
    liabilities





$
(136,687
)





$
(18,448
)Classification in the consolidated
    balance sheets:Short-term deferred tax liabilities





$
13,313






$
1,055Short-term deferred tax assets






(75,000
)






Long-term deferred tax assets






(75,000
)






(20,000
)Long-term deferred tax liabilities














497Net deferred tax (assets)





$
(136,687
)





$
(18,448
)       Singapore 
    Tax Deduction for Multi-Client Amortization.
   F-40




---



##### Table of Contents



PETROLEUM
    GEO-SERVICES ASA AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Norway 
    Exit Shipping Regime.
    FIN 48.
  Accounting for Uncertainty in Income Taxes
  NOTE 23 
    Pension Obligations
  Defined
    Benefit Plans.
  period-of-service
   F-41




---



##### Table of Contents



PETROLEUM
    GEO-SERVICES ASA AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
         December 31,2006


2005(In thousands of dollars)Projected benefit obligations
    (PBO) at beginning of year

$
97,818


$
91,760Service cost


7,151



6,649Interest cost


4,630



4,352Employee contributions


1,172



1,033Payroll tax


209



(54
)Actuarial loss, net


10,784



7,363Benefits paid


(975
)


(1,129
)Adjustment of payroll tax


1,411



Exchange rate effects


12,202



(12,156
)Projected benefit obligations
    (PBO) at end of year

$
134,402


$
97,818     December 31,2006


2005(In thousands of dollars)Fair value of plan assets at
    beginning of year

$
58,367


$
51,953Adjustment at beginning of year


(2,335
)


1,391Return on plan assets


6,716



3,788Employer contributions


9,843



6,961Employee contributions


1,172



1,033Benefits paid


(975
)


(1,129
)Exchange rate effects


7,747



(5,630
)Fair value of plan assets at end
    of year

$
80,535


$
58,367     December 31,2006


2005(In thousands of dollars)Funded status(a)

$
(53,867
)

$
(39,451
)Unrecognized actuarial loss(b)






5,009Unrecognized prior service cost(b)






(5,350
)Net amount recognized as pension
    liability (Note 15)

$
(53,867
)

$
(39,792
)  F-42




---



##### Table of Contents



PETROLEUM
    GEO-SERVICES ASA AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    (a)
    
    Includes payroll tax of $4.0 million and $2.2 million
    as of December 31, 2006 and 2005, respectively.(b)
    
    Adopted SFAS 158, December 31, 2006.    December 31, 2006(In thousands ofdollars)Net actuarial loss

$
18,495Net prior service cost


(6,246
)Net amount recognized in other
    comprehensive income (loss)(a)

$
12,249     (a)
    
    Includes payroll tax of $1.4 million.      Years Ended  December 31,2006


2005


2004(In thousands of dollars)Service cost

$
7,151


$
6,649


$
7,705Interest cost


4,630



4,352



4,124Expected return on plan assets


(4,272
)


(3,788
)


(3,160
)Amortization of prior service cost


(297
)


(335
)


Amortization of actuarial loss
    (gain)


141



(198
)


(88
)Adjustment to actuarial loss, plan
    changes






1,080



Adjustment to minimum liability










191Administration cost


113



105



98Payroll tax


478



631



601Net periodic pension cost

$
7,944


$
8,496


$
9,471         Years Ended December 31,2006


2005


2004Norway


UK


Norway


UK


Norway


UKDiscount rate


4.3
%


4.8
%


4.8
%


5.3
%


5.3
%


5.3
%Return on plan assets


5.3
%


7.8
%


5.8
%


7.5
%


6.3
%


7.5
%Compensation increase


3.2
%


3.2
%


3.2
%


3.0
%


3.0
%


3.0
%Annual adjustment to pensions


3.2
%


3.0
%


3.2
%


3.0
%


3.0
%


3.0
%  F-43




---



##### Table of Contents



PETROLEUM
    GEO-SERVICES ASA AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    December 31,


December 31,2006


2005Norway


UK


Norway


UKDiscount rate


4.4
%


5.1
%


4.3
%


4.8
%Compensation increase


4.0
%


4.0
%


3.2
%


3.2
%Annual adjustments to pensions


4.0
%


(a
)


3.0
%


3.0
%     (a)
    
    3% for services up to April 2006 and 2.5% for services
    thereafter.      December 31,2006


2005Norway


UK


Norway


UK(In thousands of dollars)Fair value of plan assets

$
19,908


$
60,627


$
18,399


$
39,968Debt securities


55
%






62
%


Equity securities


30
%


100
%


23
%


100
%Real estate


13
%






12
%


Other


2
%






3
%


Total


100
%


100
%


100
%


100
%   20-40% 45-65% 10-15% 3-10%
      (In thousands ofdollars)2007

$
1,0852008


1,1272009


1,1932010


1,2362011


1,2722012 through 2016


9,042  F-44




---



##### Table of Contents



PETROLEUM
    GEO-SERVICES ASA AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Defined
    Contribution Plans.
        period-of-service
    NOTE 24 
    Employee Share Option Plans
  ten-day
       F-45




---



##### Table of Contents



PETROLEUM
    GEO-SERVICES ASA AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
     Weighted-Options (b)


AverageOutstanding


Remaining

Optionsat December 31,


Contractual

Exercisable at December 31,Grant Date

Exercise Price

2006


Term

2006July 7, 2006

NOK 121.50


2,085,000


4.5 years

   Estimated Fair ValueOptions




Dividend

Volatility


Weighted Average

(NOK per ShareGrant Date

Granted(a)


Risk Free Rate

Yield

Factor


Life

Option)(a)(c)July 7, 2006


2,127,000


3.92-4.00%




45
%

3.5 years


44.10     (a)
    
    Number of shares and figures in the tables are adjusted for the
    three-to-one
    share split December 13, 2006.(b)
    
    During 2006, 42,000 share options were forfeited. No
    options were exercised.(c)
    
    Fair value at grant date, which represents $7.12 using the
    exchange rate on grant date.    00-16 Recognition and Measurement of Employer Payroll Taxes
    on Employee Stock-Based Compensation
  NOTE 25 
    Acquisitions and Dispositions
        Petrojarl Varg
 F-46




---



##### Table of Contents



PETROLEUM
    GEO-SERVICES ASA AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
          Petrojarl
    Foinaven , Petrojarl Banff
  Petrojarl Foinaven,
 F-47




---



##### Table of Contents



PETROLEUM
    GEO-SERVICES ASA AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
     Years Ended December 31,2006


2005


2004Production


Production


Pertra


Production


Pertra(In thousands of dollars)Revenues

$
129,258


$
280,677


$
36,742


$
298,202


$
184,134Operating costs(a)


91,441



193,122



30,148



175,872



118,946Depreciation and amortization


21,970



44,064



6,710



44,561



38,965Other operating (income) expense,
    net






(5,593
)










Total operating expenses


113,411



231,593



36,858



220,433



157,911Operating profit (loss)


15,847



49,084



(116
)


77,769



26,223Other income (expense):Income from associated companies


42



243







722



Interest expense and other
    financial items, net


(4,481
)


1,580



(431
)


(6,524
)


(804
)Income (loss) before income tax
    expense and minority interest

$
11,408


$
50,907


$
(547
)

$
71,967


$
25,419Capital expenditures

$
35,018


$
11


$
103


$
988


$
84,991     (a)
    
    Operating costs include costs of sales, research and development
    costs, and selling, general and administrative costs all of
    which exclude depreciation and amortization shown as a separate
    line.    Years Ended December 31,2006


2005


2004(In thousands of dollars)Income (loss) from discontinued
    operations before income tax expense and minority interest

$
11,408


$
50,360


$
97,386Petrojarl demerger costs


(10,055
)


(1,658
)


Gain on sale of shares in Petrojarl


66,749







Net gain on sale of Pertra


302



157,902



Final settlement PGS Tigress (UK)
    Ltd.


(254
)






Additional proceeds


3,500



500



3,048Tax from discontinued operations


(2,503
)


2,571



(24,529
)Minority interest


50



(27
)


(289
)Income from discontinued
    operations, net of tax

$
69,197


$
209,648


$
75,616  F-48




---



##### Table of Contents



PETROLEUM
    GEO-SERVICES ASA AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    December 31,2005(In thousands ofdollars)Restricted cash

$
2,010Accounts receivable, net


30,505Unbilled and other receivables


3,082Other current assets


12,135Property and equipment, net


593,878Other long-lived assets


19,059Other intangible assets, net


2,228Total assets

$
662,897Accounts payable

$
14,918Accrued expenses


27,648Other long-term liabilities


61,832Total liabilities

$
104,398   NOTE 26 
    Related Party Transactions
      
    For the six months ended June 30, 2006 and the years ended
    December 31, 2005 and 2004 the Company chartered the
    vessels MT Nordic Svenitato Knutsen OAS Shipping AS
    (Knutsen), a company controlled by Jens
    Ulltveit-Moe. The payments under the agreement were
    $5.1 million, $10.0 million and $10.3 million in
    2006, 2005 and 2004, respectively.
    In addition, the Company had a contract of affreightment with
    Knutsen for transporting crude oil relating to the Banff field
    and paid $0.7 million, $1.2 million and
    $0.7 million to Knutsen under this contract in 2006 (six
    months), 2005 and 2004, respectively.
    In January 2006, the Company entered into an agreement to
    purchase the shuttle tanker MT Rita Knutsenfor
    $35 million from Knutsen OAS Shipping AS. The transaction
    was completed on March 9, 2006.    NOTE 27 
    Segment and Geographic Information
    
    Marine, which consists of streamer seismic data
    acquisition, marine multi-client library, data processing and
    reservoir consulting;
    Onshore, which consists of all seismic operations on land
    and in shallow water and transition zones, including onshore
    multi-client library. F-49




---



##### Table of Contents



PETROLEUM
    GEO-SERVICES ASA AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
       EliminationShared


ofServices/


Inter-SegmentMarine


Onshore


Corporate


Items


Total(In thousands of dollars)Year Ended December 31,
    2006:Revenues by operating segments:Contract

$
635,626


$
218,215


$



$



$
853,841Multi-client pre-funding


131,254



17,644











148,898Multi-client late sales


221,980



27,491











249,471Data Processing


46,401











(1,887
)


44,514Other


9,254







2,652



(171
)


11,735Total revenues

$
1,044,515


$
263,350


$
2,652


$
(2,058
)

$
1,308,459Depreciation and amortization


166,156



29,137



3,333



(21
)


198,605Segment operating profit/Operating
    profit

$
399,916


$
37,676


$
(28,653
)

$
991


$
409,930Balance Sheet
    Items:Investment in associated companies

$
1,372


$



$
11


$



$
1,383Total assets


997,858



126,406



101,489







1,225,753Additions to long-lived tangible
    assets(a)

$
227,705


$
49,096


$
2,299


$



$
279,100   F-50




---



##### Table of Contents



PETROLEUM
    GEO-SERVICES ASA AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  EliminationShared





ofServices/


Discontinued


Inter-SegmentMarine


Onshore


Corporate


Operations


Items


Total(In thousands of dollars)Year ended December 31,
    2005:Revenues by operating segments:Contract

$
424,192


$
122,415


$



$



$



$
546,607Multi-client pre-funding


40,006



16,148















56,154Multi-client late sales


218,781



13,976



1,546











234,303Data Processing


41,275















(2,542
)


38,733Other


428







17,872







(6,076
)


12,224Total revenues

$
724,682


$
152,539


$
19,418


$



$
(8,618
)

$
888,021Depreciation and amortization


172,349



31,665



4,567











208,581Segment operating profit


150,229



(9,803
)


(24,131
)






(467
)


115,828Impairment of long-lived assets


4,575



















4,575Loss on sale of subsidiary










1,520











1,520Other operating (income) expense,
    net


(8,847
)






(11,655
)










(20,502
)Operating profit

$
154,501


$
(9,803
)

$
(13,996
)

$



$
(467
)

$
130,235Balance Sheet
    Items:Investment in associated companies

$
278


$



$
4


$



$



$
282Total assets


797,316



98,823



158,536



662,897







1,717,572Additions to long-lived tangible
    assets(a)

$
118,442


$
21,055


$
6,629


$



$
(83
)

$
146,043   F-51




---



##### Table of Contents



PETROLEUM
    GEO-SERVICES ASA AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  EliminationShared


ofServices/


Inter-SegmentMarine


Onshore


Corporate


Items


Total(In thousands of dollars)Year ended December 31,
    2004:Revenues by operating segments:Contract

$
297,749


$
110,288


$



$
(2,714
)

$
405,323Multi-client pre-funding


30,535



12,761



19



(1,811
)


41,504Multi-client late sales


203,397



10,112



2,015



(3,580
)


211,944Data Processing


38,639











(802
)


37,837Other


485







18,818



(8,392
)


10,911Total revenues

$
570,805


$
133,161


$
20,852


$
(17,299
)

$
707,519Depreciation and amortization


241,712



39,885



3,238







284,835Segment operating profit (loss)


(34,980
)


(4,535
)


(20,986
)


304



(60,197
)Other operating (income) expense,
    net


(13
)


9



8,116







8,112Operating profit (loss)

$
(34,967
)

$
(4,544
)

$
(29,102
)

$
304


$
(68,309
)Balance Sheet
    Item:Additions to long-lived tangible
    assets(a)

$
87,742


$
10,817


$
5,088


$
(114
)

$
103,533     (a)
    
    Consists of cash investments in multi-client library and capital
    expenditures. For capital expenditures on discontinued
    operations, see Note 25.    Years Ended December 31,2006


2005


2004(In thousands of dollars)Segment operating profit (loss)

$
409,930


$
115,828


$
(60,197
)Other segment allocated items (as
    presented in the tables above):Impairment of long-lived assets






4,575



Loss on sale of subsidiary






1,520



Other operating (income) expense,
    net






(20,502
)


8,112Operating profit (loss)


409,930



130,235



(68,309
)Unallocated items:Income from associated companies


10



33



(54
)Interest expense


(53,219
)


(95,840
)


(108,125
)Debt redemption and refinancing
    costs






(107,315
)


Other financial items, net


(637
)


4,253



(6,219
)Cost of reorganization










(3,498
)Income (loss) before income tax
    expense and minority interest

$
356,084


$
(68,634
)

$
(186,205
)  F-52




---



##### Table of Contents



PETROLEUM
    GEO-SERVICES ASA AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Years Ended December 31,2006


2005


2004(In thousands of dollars)Revenues, external
    customers:Americas

$
467,558


$
311,496


$
267,054UK


122,377



39,766



43,641Norway


73,040



133,527



63,104Asia/Pacific


233,300



199,107



191,703Africa


264,662



139,317



112,503Middle East/Other


147,522



64,808



29,514Total

$
1,308,459


$
888,021


$
707,519   Years Ended December 31,2006


2005


2004(In thousands of dollars)Revenues, including
    inter-area:Americas

$
467,811


$
312,394


$
267,054UK


124,425



40,379



46,608Norway


74,799



136,718



69,891Asia/Pacific


234,038



199,826



191,703Africa


264,662



139,679



112,503Middle East/Other


147,522



65,186



29,514Elimination inter-area revenues


(4,798
)


(6,161
)


(9,754
)Total

$
1,308,459


$
888,021


$
707,519   December 31,2006


2005(In thousands of dollars)Total assets:Americas

$
286,416


$
302,774UK


521,870



546,389Norway


264,448



117,528Asia/Pacific


139,432



73,801Africa


2,821



5,010Middle East/Other


10,766



9,173Assets of discontinued operations
    (see Note 25)






662,897Total

$
1,225,753


$
1,717,572   F-53




---



##### Table of Contents



PETROLEUM
    GEO-SERVICES ASA AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Years Ended December 31,2006


2005


2004(In thousands of dollars)Additions to long-lived
    assets:(a)Americas

$
99,143


$
42,912


$
31,664UK


85,498



70,673



41,625Norway


15,576



22,589



15,114Asia/Pacific


72,720



3,539



5,932Africa


1,882



3,894



7,572Middle East/Other


4,281



2,436



1,626Total

$
279,100


$
146,043


$
103,533     (a)
    
    Consists of cash investments in multi-client library and capital
    expenditures. For capital expenditures on discontinued
    operations, see Note 25.        NOTE 28 
    Supplemental Cash Flow Information
    Years Ended December 31,2006


2005


2004(In thousands of dollars)Interest, net of capitalized
    interest

$
51,418


$
91,722


$
106,731UK lease, additional required
    rental payments (Note 21)


7,600



2,321



2,215Income taxes


29,293



14,572



17,403   Ramform Challenger
  NOTE 29 
    Summarized Financial Information for Subsidiaries with Debt
    Securities
  Ramform Explorer Ramform Challenger
 F-54




---



##### Table of Contents



Years Ended December 31,2006


2005


2004(In thousands of dollars)Income Statement Data:Revenue

$
402,079


$
332,190


$
257,609Operating profit (loss)


38,641



18,423



(4,761
)Net income (loss)


28,238



6,376



(22,868
)Balance Sheet Data:Current assets

$
127,065


$
90,433


$
116,910Non-current assets


228,893



185,535



190,874Current liabilities


99,855



96,168



56,573Non-current liabilities


186,924



142,686



327,199Equity (deficit)


69,179



37,114



(75,988
)   Ramform Explorer Ramform Challenger Ramform Explorer Ramform
    Challenger.
    Years Ended December 31,2006


2005


2004Challenger


Explorer


Challenger


Explorer


Challenger


Explorer(In thousands of dollars)Income Statement Data:Revenue

$
4,532


$
4,114


$
5,455


$
5,064


$
5,858


$
5,491Operating profit


4,364



3,947



5,273



4,883



5,713



5,346Net income (loss)


1,207



789



1,157



766



1,166



799Balance Sheet Data:Current assets

$



$



$



$



$



$
Non-current assets


50,131



46,987



54,101



51,375



59,200



56,866Current liabilities


7,501



7,501



6,280



6,280



6,611



6,611Non-current liabilities


31,815



31,813



38,213



38,211



44,138



44,137Equity


10,815



7,673



9,608



6,884



8,451



6,118  F-55




---



##### Table of Contents



EXHIBIT INDEX
  ExhibitNumber



Description1
.1



Articles of Association, as
    amended (unofficial English translation)2
.1



Deposit Agreement, dated as of
    May 25, 1993, among Petroleum Geo-Services ASA (the
    Company), Citibank, N.A., as depositary (the
    Depositary), and all holders from time to time of
    American Depositary Receipts issued thereunder (incorporated by
    reference to Exhibit(a)(1) of Post-Effective Amendment
    No. 1 to the Companys Registration Statement on
    Form F-6
    (Registration
    No. 33-61500))2
.2



First Amendment to Deposit
    Agreement, dated as of April 24, 1997, among the Company,
    the Depositary and all holders from time to time of American
    Depositary Receipts issued thereunder (incorporated by reference
    to Exhibit(a)(2) of the Companys Registration Statement on
    Form F-6
    (Registration
    No. 333-10856))2
.3



Form of American Depositary
    Receipt (incorporated by reference to filing under
    Rule 424(b)(3) relating to the Companys Registration
    Statements on
    Form F-6
    (Registration
    No. 333-122046))The
    Company and its consolidated subsidiaries are party to several
    debt instruments under which the total amount of securities
    authorized does not exceed 10% of the total assets of the
    Company and its subsidiaries on a consolidated basis. Pursuant
    to paragraph 2(b)(i) of the instructions to the exhibits to
    Form 20-F,
    the Company agrees to furnish a copy of such instruments to the
    SEC upon request.4
.1



Demerger Plan of 27 March
    2006 for the demerger of the Company as Transferor with
    Petrojarl as Transferee (incorporated by reference to
    Exhibit 99.1 to the Companys Report on
    Form 6-K
    filed March 28, 2006)4
.2



Credit Agreement, dated as of
    December 16, 2005, among the Company, certain of its
    subsidiaries and the lender parties thereto (incorporated by
    reference to Exhibit 4.3 of the annual report of the
    Company on
    Form 20-F
    for the year ended December 31, 2005 (SEC File
    No. 1-14614
    (the 2005
    Form 20-F)))4
.3



Shipbuilding Contract, dated as of
    April 27, 2006, between PGS Geophysical AS and Aker
    Langsten AS4
.4



Shipbuilding Contract, dated as of
    September 30, 2006, between PGS Geophysical AS and Aker
    Yards AS8
.1



Subsidiaries (included in
    Item 4 of this annual report)11
.1



Code of Conduct (incorporated by
    reference to Exhibit 11.1 of the annual report of the
    Company on
    Form 20-F
    for the year ended December 31, 2004 (SEC File
    No. 1-14614
    (the 2004
    Form 20-F)))12
.1



Certification of Chief Executive
    Officer pursuant to Section 302 of the Sarbanes-Oxley Act
    of 2002 and
    Rule 13a-14(a)
    of the Securities Exchange Act of 193412
.2



Certification of Chief Financial
    Officer pursuant to Section 302 of the Sarbanes-Oxley Act
    of 2002 and
    Rule 13a-14(a)
    of the Securities Exchange Act of 193413
.1



Certification of the Chief
    Executive Officer and the Chief Financial Officer pursuant to
    Section 906 of the Sarbanes-Oxley Act of 2002 and
    Rule 13a-14(b)
    of the Securities Exchange Act of 193415
.1



Audit Committee Charter
    (incorporated by reference to Exhibit 15.1 of the 2004
    Form 20-F)15
.2



Consent of Ernst & Young
    AS