Suffering continues in seismic markets

The geoscience segment of the offshore oil and gas industry was first to be hit, when oil prices took a nose dive from 2H last year.

Results from two of the main geoscience players this morning confirm a broad industry outlook that the pain is set to continue well into 2016. 

"Energy companies continue to cut exploration spending, leading to continued pressure on demand for seismic data. Customer communication indicates that the current difficult market conditions will persist for some time,” said Norway headquartered TGS-NOPEC Geophysical Company’s (TGS) CEO Robert Hobbs, warning that “investments will decline substantially in Q4.”

“The low oil price, reduced oil company spending and intense competition for work among seismic companies impact pricing and utilization negatively,” said Norway’s Petroleum Geo-Services (PGS) this morning, adding that it “expects market uncertainty and low earnings visibility to continue well into 2016.”

Analysts Investec offered little hope with their quarterly oilfield sector review, suggesting sector earnings at integrated oil firms would fall a further 29% in Q3, compared to Q2, driven by a sequential 19% drop in the oil price.

PGS’ order book, as at 30 September, stands at US$245 million, compared to $466 million the same time last year. Net income, before tax, was a loss of $80 million, compared to $27.4 million in the same period last year.

PGS had already said it would cold-stack its Ramform Explorer and Challenger vessels, currently ongoing, as well as the Ramform Viking, at the end of October. It had also already agreed a deal to postpone the delivery of its latest Ramform vessel, the Ramform Hyperion. But now that delivery date has been set back once again, to Q1 2017, instead of Q3 2016, to reduce 2016 capex outlay. Another newbuild, the Ramform Tethys, was scheduled for delivery in Q1 2016. 

For PGS, multi-client sales have remained “solid.” The problem has been around securing other work. “Despite a sequential improvement in the marine contract EDIT margin, we experienced a further market deterioration over the summer, mainly driven by intense competition in preparation for the weaker winter season,” said PGS President and CEO Jon Erik Reinhardsen, which will result in a hit to contract revenues and margin in Q3 and Q1 next year. 

Yet, PGS also said it had entered “attractive charter agreements” for the two vessels, the Sanco Sword and Sanco Swift, “both among the most competitive conventional vessels in the seismic industry.” PGS says the move was to “position our fleet for the future and address the industry’s vessel oversupply.” The move resulted in current vessel charterer Dolphin Geophysical being issued with a Notice of Time Charter termination for the two vessels. Dolphin says it is evaluating the validity and effect of the notice, in respect to the present difficult market situation. 

Earlier this month, GC Rieber Shipping agreed a deal with Dolphin to “improve Dolphin’s competitiveness in a challenging market,” by taking early redelivery of the Polar Duke seismic vessel. Dolphin had also already agreed reduced charter rates for its vessels from Sanco, to improve its costbase.

TGS’ asset-light structure means it is less exposed to vessel utilization concerns. Still, in the first nine months of this year, TGS’ operating profit (EBIT) was $119 million, compared to $247 million in 2014. 

Hobbs says: “With a flexible cost structure and an asset-light balance sheet, TGS is positioned to take advantage of the uncertain market conditions and strengthen our position further. Although investments will decline substantially in Q4, our 2015 revenue guidance remains unchanged."

TGS also announced an acquisition, of Digital Petrodata, a Denver based GIS data and cloud solutions firms, which also offers a spatially tagged data base with North American field-related industry news.