Operating in the marine seismic environment requires the ability to constantly adapt and chase down the opportunities. Andrew McBarnet describes how fortunes tend to favour the big rather than the brave.
It’s business as usual’ has got to be something of a misnomer in commercial life. The implication is that there is a moment when an organisation is in perfect sync and everyone can relax. In actual fact, to thrive or just survive in business, companies have to be on constant alert to assess and react to a whole host of challenges which could be the state of the economy (good or bad), new technology, changing customer demands, behaviour of competitors, internal tensions, etc. Indeed ‘it’s warfare out there’ probably better summarises how company bosses at any given moment review their troops, resources and the battle ahead. This is certainly the case for the marine seismic services sector of the E&P industry which is currently somewhat trapped in retrenchment mode not knowing when it’s safe again to put their heads above the parapet.
The general impression from the main contractors which dominate the sector is that 2010 has started sluggishly, but the market is moving out of any further decline and could see some uplift by the end of the year and into 2011. Among other things, this is based on the reasonable expectation that oil companies will begin to increase their E&P spending given that the oil price is likely to stabilise somewhere between $80 and $100, a scenario being endorsed by Opec among others.
These conditions tend to favour the big four, WesternGeco, CGGVeritas, Petroleum Geo-Services (PGS) and Fugro, which are best equipped to hang in until there’s an uptick in the market. WesternGeco has the support of parent oil services giant Schlumberger, and the Fugro seismic business is part of larger geo-services conglomerate. CGGVeritas not only offers marine and seismic acquisition and process, but has in Sercel an extremely successful manufacturing arm. PGS, after a near crash and burn 10 years ago, has focused on high-tech marine business and very recently offloaded its minor interest in onshore seismic to Geokinetics, a Houston-based land and transition zone specialist.
The bottom line is that these larger companies have the resources to better withstand the buffeting of a difficult market compared with smaller outfits; but only if they make the right strategic decisions. The big four, with a major share of the marine seismic sector, have rightly been commended for their proactive approach to looming overcapacity in the world seismic fleet by reducing their vessel counts. Survey pricing is under pressure partly because there are still too many vessels chasing too few jobs, but also because oil companies currently have the upper hand after two or three years when contractors could name their price such was the demand for seismic surveys.
If the big players had not taken the action they did, we could have seen the severe consequences experienced 10 years ago when contractors tried to keep vessels working either by ‘buying’ contracts or resorting to multi-client data library building which proved to be vastly overvalued with damaging write-offs the result.
Less commented on, perhaps, is that during the boom period around 2006- 2008 the major players did not sit back and take the money. They all invested heavily in new capacity. It was the first opportunity since the mid-1990s to upgrade their fleets to accommodate advances in marine seismic acquisition technology. Schlumberger bought a shoal of vessels-in-the-making from Eastern Echo and Arrow Seismic; CGGVeritas bought the Wavefield-Inseis fleet and ordered other vessels as part of a rolling programme; PGS bought the Arrow Seismic inventory and introduced two new super Ramforms, the Sovereign and the Sterling; and Fugro ordered a series of ‘C’ class vessels, having been thwarted in its bid for Wavefield-Inseis.
Some observers argued that this high level of investment could be reckless given that the extraordinary level of demand for marine seismic could not last forever and massive over-capacity would resurface. In fact the strategy was a calculated risk. In retrospect we can see that the new vessels were regarded as a renewal programme and that there was always the expectation that older vessels in the company fleets would have to be retired when the survey market tightened up. It was also a smart move in terms of preparation for a weaker market because when oil company clients can pick and choose which vessel to go for, the newest and best equipped is likely to win the day.
The track record for companies building fleets for seismic and related surveys without the level of resources available to the Big Four is salutary to say the least. Just about any venture dependent on raising investor finance has proved to be vulnerable when the market shows a hint of downturn. Most notoriously, Scan Geophysical lost investor confidence while trying to build three high-tech 3D vessels at ABG Shipyards in India. To their obvious dismay, the founders of Wavefield-Inseis found that when the market turned, their company and a growing fleet of eight vessels, was a cheap buy for CGGVeritas. Another aspiring Norwegian newcomer Bergen Oilfield Service with three seismic vessels in its portfolio last December initiated a merger with Global Tender Barges suggesting that sustaining operations was problematic.
The ocean bottom cable specialist Reservoir Exploration Technology which raised money to build some purpose-built vessels now appears to be in desperate financial straits.
Likewise the two marine controlled source electromagnetic companies, Electromagnetic Geoservices and Offshore Hydrocarbon Mapping, are struggling not just against adverse market conditions but paying for and operating custom-built vessels ordered in the good times.
Few fringe benefits
It would seem that playing around the fringes of the Big Four to provide marine seismic services is not for the faint-hearted. The jury is out on whether SeaBird Exploration will be able to sustain the operation of its vessel Hugin Explorer which was purpose built for node-based ocean bottom survey work, the market for which is far from guaranteed. An even bigger question surrounds the future of Polarcus, the Dubai-based company bringing out an initial four vessels with an option for two more built with the new Ulstein Design X-Bow hull shape. The story is so far so good. The multi-client seismic services company TGS has extended its contract on the Polarcus Nadia, the first to be launched, and the second vessel Naila has won work from Gassnova, the Norwegian state enterprise for carbon capture and storage, to carry out two 3D seismic acquisition projects offshore Norway comprising a minimum of 405km2 and potentially up to a total of 900km2.
It remains to be seen whether Polarcus can garner enough work to sustain four vessels: in its favour is that the vessels are built to a high spec and should therefore be at least technologically competitive. Aside from proprietary work for oil company clients, another potential revenue option will be to develop multiclient surveys of its own. This is a business best left to the big companies, which already have extensive worldwide data libraries to leverage, to TGS as master of the art, plus maybe a few other niche players. The trick is to identify a survey location of geological interest to a number of companies and then secure sufficient prefunding. That can be a tall order. Last year, by limiting its multi-client operations mainly to highly anticipated projects in the Gulf of Mexico and offshore Brazil, CGGVeritas managed to obtain 100% funding for its multi-client work, but that was exceptional. TGS said that it averaged 47% prefunding for multiclient surveys worldwide last year, and was therefore dependent on good postsurvey sales performance.
Particularly after the bitter experience 10 years ago, the major contractors treat the multi-client market with a degree of caution; around 25% of their surveys are multi-client. As it happens industry interest in wide-azimuth survey illumination of subsalt areas in the Gulf of Mexico as well as offshore Brazil and West Africa has proved to be a bonus to the larger companies able to manage the technology of these projects. Wideazimuth operations involving more than one vessel to achieve the angles between source and receiver to ‘see’ under the salt structures are complex and expensive, so oil companies are happy to club together to pay for non-exclusive surveys across numerous proprietary blocks.
Outside the Big Four, TGS has been the only other company able to join in the wide-azimuth multi-client game. First announced in late-2007, its Freedom WAZ project grew from the original outline of 15,000km2 to the final project outline totalling over 16,600km2 in the Mississippi Canyon and Atwater Valley areas of the deepwater central Gulf of Mexico. The company followed up with the Liberty wide-azimuth survey on neighbouring acreage. In both instances TGS was partnered by WesternGeco, which carried out the acquisition.
This year seismic acquisition started on the Justice wide-azimuth 3D project in the Gulf of Mexico which is a northeast expansion of the Freedom and Liberty projects. The survey adds more than 7800km2 of wide-azimuth coverage to the TGS portfolio and covers portions of the hydrocarbon rich areas of Mississippi Canyon, Viosca Knoll, and De Soto Canyon. When complete, TGS will be able to offer more than 27,000km2 of Gulf of Mexico wide-azimuth from its data library. The big difference with the Justice operation is that TGS contracted WesternGeco to carry out the survey, so sales revenue is not shared.
Its an ill wind . . .
Not for the first time TGS is proving to have the right business model for the current market. Results year-end 2009, a difficult year, revealed a financially strong company issuing dividends and buying back its shares. Its formula, which no other company has been able to duplicate on the same scale, has been to acquire well supported multi-client surveys around the world using a small fleet of vessels chartered on short timescales or for specific projects. In other words, the company incurs none of the operational overheads associated with long term charters and ownership and can keep its fleet size flexible to meet demand. At the end of last year the company had two 2D and three 3D vessels on charter and had access to a wideazimuth crew and one 2D vessel chartered by others working on TGS projects. Even better for the company is that vessel availability and pricing is in its favour as contractors are struggling to find work in a market suffering a degree of overcapacity.
The interesting question is whether TGS would be so well placed today if it had been successful in its takeover bid for Wavefield-Inseis first announced in July 2007. Back then the move looked like a way forward for TGS in securing vessel capacity for its projects at a time when few suitable vessels were available because of soaring demand. It would have meant a total change in the company’s business operation with the burden of maintaining a fairly sizeable fleet. This would obviously have needed a shift into offering a significant ratio of proprietary surveys and making it far less flexible in avoiding the adverse effects of a downturn in demand.
Looking back TGS must also notice that after the breakdown of its protracted negotiations with Wavefield-Inseis, the company was bought by CGGVeritas for just about half the price it was offering.
TGS has proved resilient over the years through its capacity to locate multiclient survey locations, often ahead of licensing rounds, and put marketable projects together. Contractors can on occasion capitalise on their technology. For example, PGS is reporting industry interest in its GeoStreamer acquisition technology to revisit on a multi-client basis possible hydrocarbon prospects which could not be previously imaged. Keeping data libraries up-to-date with commercially valuable information is also crucial, and inevitably this is easier for the larger companies. CGGVeritas does not claim the largest marine seismic data library, but insists that since 2003 it has built the largest modern 3D marine catalogue worldwide.
Across the spectrum
There are some intrepid companies that come up with the occasional survey which the industry is prepared to support.
ION Geophysical through its GX Technology business unit has had some success with its SPANS programmes of multi-client studies, 13 so far, covering frontier basins of the world.
The Norwegian company Spectrum may be one to watch having just raised NKr81 million to pursue multi-client business.
The company is based on expertise and library origination from before its association with Global Geo Services, from which it has now split. It has just bought an Australian multi-client data broker to help it seek opportunities in Southeast Asia and it has made a number of moves to upgrade its data processing capacity. Spectrum is now preparing to carry out what could be an important project in US waters of the Atlantic Ocean in response to the recent announcement by the Department of the Interior to begin an environmental analysis of geological and geophysical activities off the east coast.
Spectrum claims to be the first company to have actively collected multiclient seismic data since the US leasing and drilling moratorium went into effect in the mid-1980s.
In 2006, the company submitted permit applications to the Minerals Management Service to conduct seismic, gravity and magnetic surveys off the US East Coast. The new survey would extend Spectrum’s US multi-client library, which has been growing since the company began acquisition offshore Florida in 2003. It now covers much of the ‘un-leased’ area of eastern Gulf of Mexico.
Other companies in the multi-client mix include Spec Partners which, among other things, is trying to raise interest in a North Falklands Graben survey, using the Norwegian company Nautic Offshore’s vessel Neptune Naiad. Then there are Norwegian companies like MultiClient Geophysical with interests in Norway and AsiaPacific and MagiSeis, a venture being put together by industry veterans.
These intriguing efforts are of course small fry compared with the big players in multi-client, but they certainly could not be described as business as usual. OE