Cutting down to size

As the oil and gas industry reacts to the continued downturn in prices, even the seismic vessels market is taking great pains to trim the fleet and stay competitive. Elaine Maslin surveys the market.

GC Rieber delivered the Polar Empress, a new high-capacity 3D seismic vessel to Dolphin Geophysical.  Image from GC Reiber.

“The first quarter results for many seismic companies indicate an industry beginning to feel better about itself, with the despair of 4Q 2013 a distant memory.”

What a difference 12 months makes. The above was the opening paragraph of an industry newsletter on the seismic vessel market, published 1Q 2014.

Since then, we all know what has happened to the oil price and the resulting impact on the seismic market – the first to feel the pain when it comes to a downturn.

Matthew Jurecky, GlobalData’s head of Oil & Gas Research and Consulting, told OE that with oil prices down and exploration slowing, the demand for seismic vessels has definitely dropped.

“Discretionary spending on multi-client shoots has been cut and, while projects where capital has already been committed will carry on, you could see a looser market as they are fulfilled,” he says.

Uncertainty and low earnings due to what Paris-based CGG describes as “deteriorating market conditions” are expected to continue “well into 2015,” says Norway’s PGS in its recent 1Q 2015 results.

With a number of new high-end vessels joining the market in 2014, and more due in 2015, the industry could have expected a major headache due to oversupply. And yet, seismic vessel operators appear to have reacted to the market swiftly by stacking, selling, converting or returning leased vessels to their owners.

Jurecky has taken note of this trend. “A balance is needed,” he says. “Too few vessels will lead to too much time spent in mobilization, however, the market is a ways off from this.”

Some of the adjustments were already being made prior to the fall in the oil price. CGG, for example, had already planned to reduce its vessel fleet, long before the oil plummeted. Houston-headquartered Schlumberger took swift action, reducting its WesternGeco fleet in late 2014, while PGS has cold stacked and delayed delivery of two new high-end 3D vessels.

Despite the gloom, it’s not all doom in the seismic vessel market. The fleet has and continues to see new high-end vessels entering the market.

In May, Norway’s GC Rieber Shipping delivered a new high-capacity 3D seismic vessel, the Polar Empress, to fellow Norwegian Dolphin Geophysical. It had been built at Kleven-owned Norwegian shipyard Myklebust Verft. The DNV GL-classified ice-class 1A, 113m-long, 21.5m-broad vessel, able to travel at up to 18 knots, is on a three-year charter to Dolphin Geophysical.

The Ramform Atlas, an ultra-high capacity Titan-class seismic data acquisition vessel, was delivered to PGS in 1Q 2014.  Image from PGS.

The Polar Empress can take 70 crew, has 275-tonne bollard pull, and is able to efficiently tow up to 22 Q-Marine streamers. In addition to Polar Empress, GC Rieber also owns the Polar Duke, Polar Duchess and Polar Marquis, all three of which are chartered to Dolphin Geophysical.

Dolphin, a relative newcomer to the market, having started trading in 2010, is not immune to the pain being felt by the industry, but says its “asset light” charted vessel model means it is well placed to get through the downturn.

The firm has five high-end vessels, and one 2D vessel. In 1Q 2015, the firm said it is cutting its fleet capacity by returning the Artemis Atlantic to its owner and de-rigging the Artemis Arctic from an eight-streamer 3D vessel to a 2D vessel for six months operation in Mexico. The firm says its charter structure allows it to carry out further fleet reductions or charter renegotiations in 2016 if the seismic market does not improve.

Dolphin Group CEO Atle Jacobsen has praised the seismic vessel market’s willingness to adjust to the market. “The supply responses that have taken place in the seismic industry are unmatched in the oil service sector. Older and less competitive vessels have continuously been taken out of the market to adjust capacity with lower demand volumes,” he said in the firm’s 1Q 2015 results. “Consequently, we believe in improved seismic fleet utilization toward the end of the year, which can open for a swift recovery of the existing market fundamentals.”

PGS has also felt the pain, with weak vessel utilization causing 1Q 2015 revenues to drop to US$251.1 million, from $292.5 million in 1Q 2014. The firm has been growing, with the Ramform Atlas delivered in 1Q 2014 and two other new vessels under construction.

However, the firm is taking measures to right size itself for coming months. PGS announced it will cold stack the Ramform Explorer and Ramform Challenger after the vessels complete this year’s North Sea summer season. Also, the firm is targeting $220 million cost reductions in 2015. It recently also agreed to a sale-and-leaseback deal for the PGS Apollo, its only non-Ramform designed 3D vessel, with Offshore Merchant Partners.

Originally scheduled for 2015, delivery has been delayed for its two latest Ramform Titan-class newbuilds under construction at Mitsubishi Heavy Industries (MHI) in Japan. PGS and MHI have agreed to a revised construction schedule for Ramform Tethys and Ramform Hyperion, now due to be delivered by 1Q 2016 and 3Q 2016.

“The sharp oil price decline since mid-June 2014 has resulted in a more cautious spending pattern among oil companies, impacting bidding, pricing and utilization negatively,” PGS says. The company expects market uncertainty and low earnings visibility to continue well into 2016.”

The firm is hopeful of improved utilization in coming quarters, but it says, “The sustained low oil price and cautious spending behavior among oil companies will continue to impact the seismic market.”

CGG has been implementing a fleet reduction program since it announced its “Transformation Plan” at the end of 2013, when it had 18 vessels. The plan was to reduce the fleet to 13 vessels, but this was revised to 11 3D vessels in the firm’s 4Q 2014 results, a figure which has now been achieved.

CGG’s marine acquisition division revenue was $249 million in 1Q 2015, down 45% year-on-year and down 11% sequentially. Multi-client program work dropped from 51% to 35% in the same period, the firm reported.

Polarcus said its first quarter results were affected by the continuation of a weak market, with spending and budget commitments further reduced, leading to a 33% drop in revenues for the firm, compared to the same period last year. While it looks to reduce costs and increase vessel utilization, cold stacking is not off the table. At the end of the first quarter, Polarcus cold stacked the Polarcus Nadia, a modern, 12-streamer 3D/4D vessel, featuring the Ulstein SX124 design with the X-Bow hull. The vessel had been delivered from Drydocks World Dubai in 2009.

Similarly, Schlumberger has restricted its WesternGeco marine seismic fleet to lower its operating costs due to expectations of lower exploration spending. The firm has been retiring older vessels with lower towing capacities and higher operating costs by converting the remaining lower-end vessels to source boats and by canceling most of its third-party charters. During 4Q 2014, Schlumberger was due to reduce its fleet to nine survey and six source vessels by yearend, from a total of 15 survey and eight source boats at yearend 2013.

The company’s fleet included six Explorer-class vessels acquired at a premium in the 2007 purchase of Eastern Echo Holdings, as well other seismic assets.