Multi-Proprietary Marine Seismic (7 December 2015)

A Business Model for Cooperation and Knowledge Sharing is the Future

Operational excellence remains a greater imperative than most companies and most executives acknowledge

Gene Tyndall in Supercharging Supply Chains

Problems are excellent guides to improvement, but only if the real problem is identified.

Paraphrased from The Toyota Way to Lean Leadership

For some time now, the initial phase of the geophysical data acquisition and processing value chain has been packaged into two business models: proprietary contract and multi-client. For proprietary contract models, operators are typically directly involved in the different steps of the value creation from designing the survey, specifying objectives, and then being more closely involved in overseeing that their contractual objectives and requirements are satisfied. In proprietary models, license operators own the data. The multi-client business model usually undertakes larger geophysical data acquisition and processing projects and then distributes the costs over time among different customers who wish to make use of the data. In the multi-client model, the service provider owns the data and certain products derived from the data. The marine geophysical data acquisition and processing business space is currently dominated by a variety of multi-client business models which have begun to obscure a clear delineation from proprietary contract business models. Current vessel and equipment capabilities are aligned toward larger survey size to be most resource cost-efficient. In spite of the cost-efficiency of larger surveys on scale, such larger surveys are still expensive in total. The capital commitments for larger surveys point toward a hybrid of these two models driven by license operators more so than seismic service companies. In a multi-proprietary model operators in adjacent or proximate licenses would more closely cooperate and coordinate the planning and parameterization of larger geophysical data acquisition and processing projects outside the direct purview of the seismic service company. Operators would retain data ownership and determine data sharing schemes to improve imaging over the proximate licenses. Operators would then be able to more easily explore and test different data processing solutions than those bundled by single seismic data acquisition and processing companies and deterministically study and compare the stochastic processing results from the variety of service provided solutions through a combined operator tender process.

In large part, the convergence of these business models has been driven by technology and innovations within the multi-client space where different business players highlight their own unique internal capabilities, resources, and processes creating a number of different customer-focused solutions. Products have evolved from different proprietary technologies and algorithms which have created commercial differentiators. However, the predominant catalyst driving these differentiators in the marine seismic streamer sector was the advent of broadband marine seismic streamer data as a commoditized offering. How is this so? Broadband seismic data is desirable for a number of reasons. However, acquiring broadband data in the marine environment had always been encumbered by the loss of frequency which was a product of the signal reflecting back from the air-water interface and cancelling out a frequency band which is dependent on the water depth of the receiver and source. This frequency loss is referred to as ghost-notch. Marine seismic data acquisition involves using a submerged seismic source and streamer cables containing several receiver sensors. To broaden the bandwidth for single-sensor hydrophone data, vertically displaced streamers could measure at different depths. Combining the data would provide broadband data. In ocean-bottom seismic (OBS), multiple-sensors (hydrophone + particle velocity) had been used to provide broadband data. The different sensor types have the ghost-notch in different frequency bands. Through combining the signal of the different sensors, a broadband signal could be recorded. In OBS seismic operations, the sensors remain stationary while the source moves. In seismic streamer operations both the source and sensors move. In 2007, a dual-sensor streamer was introduced commercially for 2D data acquisition projects, followed in 2009 with 3D data acquisition capability. The dual-sensor streamer could record broadband while moving, and this was a step-change technology.

Because of the proprietary nature of the dual-sensor capability, competitors begin developing and offering different depth-varying single-sensor hydrophone seismic data acquisition and processing techniques which also provided broadband data. Improved solid-filled streamers coupled with better streamer control devices made depth-varying streamer acquisition operationally and commercially achievable. The competitive bidding process of proprietary contract work makes it problematic for a service provider to offer a new technology and unique solution. Operators would not be able to require broadband data acquisition in competitive bidding if only one contractor offered it. So, now a variety of broadband acquisition solutions are offered to meet operator broadband data requirements, including different depth-varying techniques, as well as four-component and dual-component streamers developed and offered by the different marine seismic streamer service competitors. The different acquisition techniques to acquire broadband data have leant themselves to a variety of seismic data processing and imaging solutions that address the particular challenges and benefits which each data acquisition methods holds. This competitive environment has led to service providers bundling marine seismic acquisition with their subsequent proprietary data processing and imaging solutions. Algorithmic data processing solutions in different computationally intensive domains, such as Ƭ-p, have also been developed to provide broadband data from single-sensor hydrophones towed at uniform depth adding to the pool of choices for broadband data. Broadband data has become the new normal requirement of operators. Broadband data has become commoditized even though the varieties of broadband data are acquired and processed very differently through black-box proprietary algorithms with little external oversight, especially in the multi-client model.

The only thing that will redeem mankind is cooperation.

Bertrand Russell

If you are not willing to risk the unusual, you will have to settle for the ordinary.

Jim Rohn

Offshore oil and gas exploration is guided through the administering of agreements over defined areas. The terms of these licensing agreements can vary greatly between countries based on sovereign interests and priorities. Generally, such licensing agreements are entered into through a competitive bidding round whereby individual operators or a consortium of operators agree to meet the objective commitments that the licensor has outlined. Of course, the end objective is to locate and develop offshore oil and gas reserves. Therefore, the terms of the license generally outline requirements over the block which works toward that objective. Geophysical data acquisition is a most usually a requirement. Subsequent exploration drilling is more capital intensive and geophysical data is regarded as primary risk mitigation in the exploration and production of offshore resources value chain. Geophysical seismic exploration dominates the geophysical exploration arena. However, gravity and electromagnetic geophysical technologies are also used in tandem or in addition. Within these broad definitions of seismic, gravity, and electromagnetic exploration techniques, different ways of acquiring data, measuring and processing such data properties have been developed. Therefore, the next great step-change in this value chain will be in the concurrent data processing and shared parameterization between the different methods and datasets into a final consolidated geophysical data volume. (But, this concept will be left for another prose.)

In the depressed oil and gas business sector many seismic exploration projects are only being undertaken because of license requirements which were predetermined during the time that the price for oil was much higher. Many operators are increasingly concerned with meeting their basic license commitments rather than investing in more expensive technologically focused higher-valued solutions. The significant decline in oil price has also deterred investment in offshore licenses. Uncertainty on the licensing terms and conditions, as well as global political and economic volatility has increased investment risks. Against this backdrop of reduced revenues, capital expenditure (CAPEX) has also been reduced by International Oil Companies (IOCs) as well as National Oil Companies (NOCs) with budget cuts being concentrated on exploration spending. Because of this, the sentiment is that frontier exploration in new license blocks will be postponed. The industry seems to be forecasting average Brent crude to be trading between $55-$60 USD/bbl through 2016. Clearly, the minimum capital expenditure for seismic acquisition which meets license requirements is what cash-sensitive operators will be seeking, likely in addition to better terms and conditions respective of the current environment. As time passes, this will likely translate into fewer exploration opportunities driven by licensee commitments with investment being steered toward fewer lower risks opportunities in regions with the most favorable license terms.

Operators are looking to service providers to deliver significant costs savings. However, the marine seismic streamer fleet is likely approaching some of the lowest margins ever, if they have not already been reached. Many marine seismic streamer focused companies have been losing money. Vessel over-capacity has placed significant pressure on the marine seismic streamer sector forcing several fleet reductions since the precipitous decline in oil prices began the middle of 2014. It is generally believed that more reductions are still needed in the global marine seismic streamer fleet to balance the current over-capacity dilemma. A significant benefit to operators has been the fierce competition and variety of innovative solutions available to meet their requirements. Many operators who manage several licenses prefer an environment that provides such variety and consciously award work to different service providers to maintain it. The danger is that one of the marine seismic streamer focused companies will collapse or be taken-over by a competitor. Such an event will reduce capacity, but also reduce solutions with the desired goal to improve pricing levels. This has already played-out with one company taking over charters for Sanco Shipping vessels Sanco Sword and Sanco Swift after financially distressed competitor Dolphin Geophysical (Dolphin) went in default. This has already led to the operators having to award work to a less preferred contractor. An optimistic player has also announced its interest in assuming competitors assets to balance the market. The long-term consequence of losing one of the service providers, as opposed to balancing the vessel-streamer over-capacity is that there will be fewer solutions available to operators in the long-run. Also, competition has demonstrated robust innovation and favorable pricing. Therefore, long-term cost savings to license operators for marine seismic streamer services must come from another avenue.

Because operators have become more familiar with the various solutions offered by the different marine seismic streamer companies, they also understand processes and want to exercise more control over the data. This tendency leans toward a proprietary business model. At the same time, operators will want the advantages of distributed risks and reduced capital investment which traditional multi-client models provide. A hybrid of these models where operators in adjacent or proximate licenses cooperate in the planning and parameterization of larger geophysical data acquisition and processing projects outside the direct purview of the seismic service company is another approach. Operators would retain data ownership and be able to more easily explore different data processing solutions than those bundled by single seismic data acquisition and processing. Larger jobs also help contractors with smaller fleets where global coverage and long transits between smaller jobs quickly reduce profit margins. The dominance, and perhaps over-saturation, of the multi-client model is related to both the novelty of newly developed data acquisition and processing solutions which are tied to proprietary technology and techniques as well as the cost of large surveys. The greatest risk of marine seismic projects – or any commercial venture – is management. This is where the greatest gains and losses are made: through the decisions of management. Assuming control along with the risks is the greatest cost savings, provided good management practices and decisions prevail. Quite simply, the proprietary model affords more direct control over the project outcome by the operator. But, the operator also often assumes more risks (and opportunities) with this control.

Risk is uncertainty. Reducing uncertainty reduces risks through improving the decision making process. The multi-client models great benefit is providing regional as well as operator specific dataset to inform decisions to regional stakeholders. Proprietary datasets are not always shared between operator licensees. However, in many ways, this model of competition which limits cooperation does not match what is known about geology or current exploration and drilling technologies. Country borders and subsequently derived offshore license borders are politically defined entities. The geological formations and reservoirs formed irrespective to these ephemeral borders which are just a blip on the geological time scale. The best decisions would come from sharing information across the borders, especially in the areas of data processing aperture. Further, the depth of current reservoirs and the technologies such as horizontal drilling obfuscate the meaning of such linearly defined borders anyhow. Improved computing capability can better handle larger data volume size. Data imaging will take into account more regional geophysical data, as it does with multi-client models, but parameterization and testing will be reviewed and approved by the cooperating operators. Larger surveys where operator proprietary interests are common would cooperate to commission vessels for longer periods of time and then would have the benefit of scale. It would also provide a certain guarantee to vessel operators. Mobilization and configuration changes would need to be managed, but combining such activities would reduce overall costs of data acquisition and data processing projects. Improved decisions will come from shared knowledge and cooperation. This will optimize the opportunities for intended outcome. The knowledge risk management concept relies on improving knowledge management and knowledge sharing which reduces uncertainty. This in turn affects better decisions. Knowledge sharing translates into communication. Poor communication is given as the number one reason for project failure. Borders, business models, and management systems are created for commercial objectives. It is easier to change the approach to managing these than to change the geology. And this is where the cost-savings and other benefits will come from.

I’m a great believer that any tool that enhances communication has profound effects in terms of how people can learn from each other, and how they can achieve the kind of freedoms that they’re interested in.

~ Bill Gates

The most powerful force ever known on this planet is human cooperation – a force for construction and destruction.

Jonathan Haidt