A key component in exploration and production, the seismic business sector has suffered along with the rest of the oil and gas industry in the current price collapse. In his introduction to this issue’s Seismic Spotlight, Andrew McBarnet examines how the leading seismic services providers are adapting to volatility in the market.
There is a paradox about the current state of the seismic business. It is close to mortally haemorrhaging from the impact of the low oil price environment. Yet it can claim to be one of the most efficient, technologically forward-looking sectors serving the oil and gas industry.
This is most dramatically true of marine seismic acquisition. For example, two of the few remaining contractors have both claimed recent records for the extraordinary data acquisition coverage that they have been able to achieve. Coincidentally both companies were operating off Myanmar at the time.
Petroleum Geo-Services’ (PGS) Ramform Titan (pictured) was the first of the latest series of four giant 3D seismic vessels to be launched by the company with a 70-metre wide back deck designed for maximum data acquisition productivity. It dwarfs every other vessel in the world fleet , including the PGS Ramform S-Class vessels, which have 40-metre back decks.
PGS anounced in December that the Titan was off Myanmar towing an unprecedented 18 streamers, each 7.05 kilometres long, with 100 metres separation between the streamers. This makes a total spread width of 1.7 kilometres and represents close to 127 kilometres of streamers, said to be the widest deployment on record.
The total surface area of the streamer spread is 15.6 square kilometres, and the vessel has been acquiring data at a daily rate of 160 square kilometres. This was a record, according to PGS.
In a piece of PR one-upmanship, Polarcus countered in January that its ultra-wide 3D marine seismic project off Myanmar, using the Polarcus Amani, was reported to be towing an in-sea configuration measuring 1.8 kilometres wide across the front ends. With each of the 10 streamers separated by 200 metres, the total area covered by the spread was 17.6 square kilometres — a record, says Polarcus.
The company suggested this was largest man-made moving object on Earth and was setting new acquisition performance records of 190 square kilometres per day, a production rate that is currently unrivalled in the seismic industry.
Comparisons in this case are misleading, at best. For example, the density of the data being acquired by PGS is infinitely superior. No Polarcus vessel could ever match the streamer count being towed by the Titan, which is designed to tow 24 streamers.
The point, however, is that both contractors are literally going to extraordinary lengths in order to provide a cost-effective solution for their oil company customers. The Myanmar surveys reflect companies offering their best technology. As well as a huge seismic spread for maximum productivity, PGS is also deploying the latest version of its GeoStreamer GS dual source and streamer.
The system is acknowledged to provide some of the best resolution imaging of the subsurface available. Polarcus is providing what it calls a right size survey for its customer based on its proprietary technologies and modern 3D vessel.
But you can be sure that neither PGS nor Polarcus is making a killing on these projects, or even a reasonable rate of return on their investment. Contractors are inured to oil companies exploiting the market conditions to extract the lowest price possible regardless of the technology offering. Nor do budgets seemingly allow them to advance exploration projects（. For example, 3D seismic surveys are an essential preliminary to drilling a prospect but cost a fraction of the price of a well. A continuing frustration for the entire geoscience community is that the cost of seismic represents only 2% to 3% of total E&P spending, but is a vital step in both de-risking prospects and calibrating reserves.
Oil companies cannot be held too accountable for the struggles of the seismic services sector. It operates on a business model that historically has been unable to sustain itself in a cyclical market. The health of the whole business is tied tightly to the volume of marine seismic data acquisition operations worldwide. If activity is down, then contractors, suppliers of equipment and the numerous specialist companies in processing and imaging of data all suffer.
Land seismic makes up a less significant proportion of the business as a whole. Nevertheless, a downturn still has an impact, pretty drastic this time in North America, where the shale boom has stalled.
Balancing act
It is a moot point whether the marine side of the business can ever achieve equilibrium. Its fortunes can be plotted on a graph of the oil price. If oil prices are high then oil companies invariably will spend money on seismic. But there is also a cycle in play. When oil companies have invested their quota, they move forward with the drilling and development phase of projects based on the seismic data they have commissioned.
To date, marine seismic players have never been able to manage these peaks and troughs of the market. It boils down to having no mechanism to control the supply of vessels in the seismic fleet worldwide. With the oil price plunging from more than $100 per barrel to less than $30, a particularly drastic scenario has been playing out exposing all the issues involved. The scale of the crisis can be measured by the fact that at the end of 2012, the big five contractors — WesternGeco, CGG, PGS, Polarcus and Dolphin — had an estimated combined fleet of 59 3D vessels with towing capability of more than six streamers. Today that number is around 26.
The figures are a little misleading. They do not account for the increase in streamer count on board today’s vessels, and hence productivity. In other words, it takes fewer vessels to meet the market’s requirement. This also chimes with the PGS calculation that the actual amount of survey work taking place is arguably the same as in the good year of 2008.
Even so, there is said to be an oversupply of vessels to meet the current demand if judged by the rate contractors can charge for marine seismic surveys.
The downturn claimed its first casualty in December when Dolphin Geophysical went into bankruptcy. The short story is that the company was launched on a wave of investor enthusiasm in 2010. The management, led by Atle Jacobsen, bet on building a fleet of six modern vessels that would meet oil company demand for high-tech vessels as the market recovered from the global economic downturn.
Jacobsen was aware of the risks. In an Upstream Technology interview in late 2014, he said that if market conditions deteriorated, the “asset light” company would cope (Upstream Technology 6, 2014). The fleet could be reduced cost-effectively because of a cautious chartering policy and not owning the vessels. That contingency proved optimistic. The company ran out of cash to run the business, basically weighed down by the debt incurred when entering the market.
In retrospect, it is a case of “sometimes you win and sometimes you lose”. Jacobsen has been there before. In the early 2000s, he was a prime mover in the start-up Multiwave Geophysical before it was successfully sold to Norwegian company Exploration Resources and ultimately to CGG. His next venture, Wavefield Geophysical, was less fortunate. In 2007, the company had the opportunity to sell to TGS or Fugro in a hot market, with contractors looking for rapid fleet expansion to meet demand. The company held out for a better offer and ended up selling to CGG for half the price the following year. However, Wavefield came out better than two other companies of the same era, Scan Geophysical and Bergen Oilfield Services, which both disappeared.
The pattern in all these ventures has been mainly Norwegian investors abetted by shipowners hoping to capitalise on a booming market without sufficient regard for the downside.
Polarcus was founded in very similar circumstances and is operating on the edge. In 2008, when the industry was still on a roll and money was available, the company went big and raised the capital to build eight new vessels. The premise was that the shiny new vessels could easily compete with some of the ageing inventory of the main contractors. But, like everyone else, Polarcus has now been forced to make severe cost reductions and trim its fleet.
In January, bondholders settled on a financial restructuring, which will allow it to continue for the time being.
Fleet management
CGG is also paying a heavy price for a large fleet in the good times. Less than four years ago it had created a fleet of 19 3D vessels through acquisitions and newbuilds.
This included vessels from its $3.2 billion merger with Veritas DGC in 2006 and earlier purchases involving Aker Geo, Multiwave Geophysical and Wavefield Inseis. Its last move in 2012 was to add four vessels from its purchase of Fugro’s geoscience unit for €1.2 billion.
Under its transformation plan begun two years ago, CGG management under Jean-George Malcor now plans to operate only five vessels as its core fleet. This is a decision partly forced on it by being unable to sustain such a large fleet and the overheads involved when demand declines. The company is also struggling, reflecting the sparse market for its equipment-manufacturing division Sercel, which has in the past produced stunning results.
CGG is implementing a strategy to be seen as an integrated geoscience company offering a full range of services from land and marine data acquisition to sophisticated reservoir imaging and more, but with minimal commitment to vessels of its own.
According to Malcor, “CGG should remain resilient all along the downturn of the cycle to become strongly cash-generative when the market bounces back”.
CGG intends to be far less exposed to marine contract acquisition, the most cyclical and capital-intensive part of its operations. It will focus on its added value businesses, such as its GGR (Geology, Geophysics & Reservoir) division, where it has been a market leader, especially on the data processing side.
The company is targeting GGR to compose 60% of the business, and seismic equipment 25%. The transformation so far has seen a massive fall in the company’s capitalisation to $0.5 billion. It remains a major player in the business with 7650 people in 50 locations around the world (as of September 2015), although some further shrinkage is expected.
Schlumberger has also been redefining the role of its WesternGeco seismic contracting business. There will only be six vessels instead of 18 just a few years ago.
Schlumberger reported a backlog of $1.1 billion for WesternGeco in its last financial results, but this was largely attributable to long-term major land seismic survey work in the Middle East.
Both Schlumberger and CGG intend to operate more in the multi-client arena and build on their extensive data libraries. In the past, this space has been most successfully exploited by TGS and to a much lesser degree Spectrum and a few other minor players.
Their success has been founded on being able to commission surveys without the burden of vessel ownership. TGS is in fact the marine seismic contractors’ largest single customer.
Now there is a clear trend among oil companies to commission an increasing amount of data acquisition via multi-client projects. This lowers the cost of the surveys, and in some jurisdictions the health and safety risk to the oil companies. Schlumberger has already taken the multi-client function away from WesternGeco, which is now effectively a seismic vessel contractor only.
CGG intends to have two or three vessels of its small fleet devoted to multi-client. Both companies believe that they will be less vulnerable to market volatility in the future. The implications for the multi-client market are still unclear, but the multi-client specialists are likely to experience more competition both for projects around the world, which are not unlimited, and for vessel availability.
Meanwhile, PGS’ strategy has been to aggressively invest in its Ramform brand of vessels, highlighted by the decision to build four Titan class vessels.
It has negotiated itself a measure of financial security to take it through until 2018, and is quite explicit about being willing to exploit competitor vulnerabilities. This was made apparent when it agreed to take on the charters of the Sanco Sword and Sanco Swift when Dolphin had to return them to the ship owner. Its end game is to become the dominant player with a flexible worldwide fleet able to juggle vessels to meet the requirements of both the multi-client and proprietary survey market.
Some in the industry express the hope, albeit faint, that the shock to the system from the current oil price collapse will usher in a more cautious approach to marine seismic investment in the future. A good sign is that companies have been willing to retire their older vessels and stack some more recently built units.
Assuming an eventual market recovery, the big question is whether companies will be able to resist the temptation to bring too many 3D vessels back into the market. A basic line-up a year or so from now would probably see PGS with nine vessels, WesternGeco and Polarcus with six each, and CGG with five.
In addition, there are some regional 3D seismic players, including Chinese geophysical company BGP, which do not affect the global contracting market.
It seems likely that the three top-of-the-line Dolphin vessels currently with ship owner GC Rieber — Polar Empress, Polar Marquis and Polar Duchess — will find their way back into operation through a refinanced Dolphin, maybe a new entity or charter by an existing operator.
There is no magic wand that can provide equilibrium of supply and demand. Maybe the industry’s past history will serve as a lesson. Meanwhile, the whole seismic business will just have to keep its fingers crossed that some market discipline will impose itself.
石油圈
