Big News in 3D Marine Seismic. Will Less Mean More? (23 October 2015)

Content Revised 14 November 2013 by Request of Company to Remove their Named Reference

A Quick-Look Near-Term Analysis of the 3D Marine Seismic Market

The SEG Annual Meeting had just ended.  But, the big news arrived the day after when a marine seismic acquisition company released its Q3 2015 earnings.  The Q2 2015 Analysis in the article, The Rise and Decline of the 3D Seismic Fleet concluded some fleet adjustments would be required as low exploration expenditures combined with 3D marine seismic vessel over-capacity continued. Dolphin Geophysical’s (Dolphin) press releases provided surprising and interesting news.  A competitor released that it would additionally be cold stacking older class vessels, likely at the end of October 2015.  In somewhat of a “bomb-shell” Dolphin released that Sanco would be terminating their charter agreements with Dolphin on their relatively new Sanco Swift (2012) and Sanco Sword (2014) vessels.  This was in addition to recent news that GC Rieber and Dolphin had negotiated better terms for the current market conditions, including early re-delivery of the Polar Duke.  While there was no reason given for the announcement by Dolphin, it is speculated that Dolphin was in charter default.  However, Dolphin is evaluating the termination notice.  Which brings us back to their competitor who announced, along with its earnings, that it had entered into favorable lease terms for both Sanco Swift and Sanco Sword and would charter as conventional while further cold stacking two older class vessels.  

And what about their additional ultra high-capacity new builds?  One seems on schedule for a Q1 2016 delivery.  However, delivery of the second one is now scheduled to be delayed from Q3 2016 to Q1 2017.  This is a lot of news to digest!  Although not all financials have been released, vessel allocation/usage has been released for certain players.

Given the current information, the 3D seismic fleet at this point in Q4 2015 is as follows:

Continuing the previous analysis considerations of Streamers-EBIT-DEBT and extrapolating into 2016, the following plot is derived.

The smaller Dolphin fleet will be challenged to accommodate global coverage.  The potential of long transits along with low margins could be problematic.  Their wide-tow competitor has cold stacked an additional 36 streamer capacity (12×3 older class vessels) but added 32 streamer capacity (2 x 16 Sanco S.).  The company will move  their dual-sensor streamers from the vessels to the Sanco vessels.  But, they will be taking advantage of the newer vessels and reduced maintenance.  Also, Q2 2015 had 78% vessel allocation.  So, the reduction of 4 streamers is almost no difference in the overall 3D seismic fleet.  The capacity has been shifted.  So, I do not expect any pricing premiums for reduced capacity in the near-term.  The wide-tow leader will still be in a weak market with essentially the same streamer capacity and be receiving another 16 streamers in Q1 2016.  However, they will now have more conventional capacity and reduced differentiation as they move toward a future of lease agreements over vessel ownership.  This is a pre-release meeting analysis based only on recent developments.  More to come.