Content Revised 13 November 2013 by Request of Company to Remove their Named Reference
Horse sense is the thing a horse has which keeps it from betting on people. ~ W. C. Fields
You cannot beat a roulette table unless you steal money from it. ~ Albert Einstein
In some East Asian cultures the number “four” is considered unlucky. Whether a number is considered lucky or unlucky can depend on whether the number’s name sounds similar to other words with positive or negative meanings. In Japanese, the word for the number “four” sounds similar to the word for “death.” Never do things in fours. But, if you do, change the sound. Instead the fourth floor, be floor 3A. Perspective is everything. The geophysical exploration service sector is known to be cyclic, and so perhaps market prediction is more like a game of roulette than straight poker. Many marine seismic streamer acquisition companies have placed their bet on wide-tow and invested in expensive new-build seismic streamer vessel programs. The real question is, knowing what we know now, is wide-tow streamer acquisition still a sound bet when the final count is made?
Anyone in the oil exploration business knows that even when applying the latest technologies and methods a little extra luck can’t be a bad thing, especially when the game is cyclic exploration roulette. The predominance of the wide-tow streamer seismic acquisition model is established. The industry has always bet on wide-tow marine seismic streamer acquisition, and vessel streamer tow capacity has steadily increased over the years. Since the collapse in oil prices in mid-2014, once again explorers have had to confront the unpredictability in oil prices and sow losses from such bets. Dolphin Geophysical entered the marine seismic streamer market in 2011 with the same heady optimism. They entered into a charter agreement with Sanco Shipping ASA to take delivery of wide-tow capable Sanco Swift in 2013, as well as Sanco Sword in 2014. Schlumberger’s WesternGeco also added Amazon Warrior in 2014 and Amazon Conquerer in 2015. And CGG grew its fleet in 2012 through acquiring the Fugro Geoscience streamer fleet as Fugro decided to abandon this market sector. Dolphin Geophysical folded in late 2015 and WesternGeco and CGG dramatically reduced their fleets following the crash in oil prices. Most marine seismic streamer players were also betting on the wide-tow business model and planned their expansions and new build programs accordingly prior to the decline in oil prices mid-2014. However, one player stands alone in only minimally reducing their fleet and even toking on new charters.
How wonderful that we have met with a paradox. Now we have some hope of making progress. ~ Niels Bohr
In the realm of ideas everything depends on enthusiasm… in the real world all rests on perseverance. ~ Johann Wolfgang von Goethe
The demand for seismic streamer acquisition broadband data was ushered into the market through remarkably engineering multi-sensor cables historically applied in seabed seismic operations into towed streamers. But, multi-sensor streamers – towed cables – broadband is but one acquisition approach. Other innovative geophysical exploration companies developed their own broadband seismic streamer acquisition techniques to serve the new demand for broadband. The market would not allow a single proprietor solution. The competitive market wants choice for acceptable solutions. Advances in operational streamer control and positioning systems have also seen levels of innovation which usher in the practicality of refined traditional approaches to achieve seismic streamer broadband acquisition. The traditional seismic experiment that has defined the market, and more importantly what customers request in the form of tenders, has remained less flexible than the innovative environment they are immersed in. New ideas are often curtailed by the procurement bureaucracy which holds onto traditional solutions to solve new problems. This is discussed with the blog post, Upstream Exploration and the Paradox of Choice (10-May-2015). Crisis always upends norms, for better or worse. Innovations in marine seismic data processing and imaging technology has also unleashed new approaches and possibilities. Innovations outside the traditional boundaries of market sectors have now encroached on the market share of marine seismic streamer acquisition. Most notably, this is seen in the improvements and innovations in seabed seismic.
The economics of marine seismic streamer wide-tow are easy enough to understand. The principal cost of a marine seismic survey has traditionally been tied directly to the cost of operating the marine seismic (streamer) vessels. There are often support vessels also employed to support the technical data acquisition operations. This cost is colloquially referred to as the project “day rate” for operations. Marine seismic streamer vessels must be powerful enough to tow both the seismic source arrays and instrumented cables – streamers – at the same time. This is what makes marine seismic streamer acquisition so time efficient. Narrow azimuth marine seismic streamer employs a single vessel in operations. These streamer spreads cover a large area. The larger the area, the more data that can be acquired in less time with a wider the spread. So, the reasoning goes, if the vessel is operating, tow as many streamers as possible as long as the operation cost for the vessel remains is less than the earned efficiency benefit of time or money to the customer. This is market dynamic written about in the blog post, Marine Seismic Streamer Time and Money 2016 (6-Oct-2016). This business model can be called the reduced vessel utilization model. If most of the cost is due to vessel operation, then reducing the use of the vessel will reduce project cost. This model implies an operational cost base balance (similar vessel cost base) and a growth market that also prioritizes time savings.
Seabed seismic operations have traditionally involved multiple vessels, at least one vessel for the seismic source (high-pressure air guns) and another to lay cables and record data. The operations also were more time consuming. Seabed seismic has not had the same limitations of bandwidth which towed streamer seismic has had. (The frequency loss in streamer seismic is a product of the depth under the water surface which streamers are towed.) Seabed seismic has acquired multi-sensor broadband data for a long time. Seabed seismic data has not had the same issues of azimuth and offset limitations which narrow azimuth seismic streamer acquisition has because of the inherent geometric limitations of towing source and streamers together. In seabed seismic, the sensors are stationary and the source moves. Years ago, seabed seismic was mostly ocean bottom cable (OBC) operations. Long cables were laid on the seabed and then retrieved following passes of the source vessel. Nowadays, the seismic sensors can be detached from cables. Individual nodes can be placed by smaller autonomous underwater vehicles (AUVs). As day rates have moved upward for wide-tow streamer acquisition, much in part to the cost of operating the larger and elaborately equipped vessels, day rates and efficiency gains in seabed seismic operations are not as comparatively expensive as they once were. Simply, seabed seismic is encroaching on the marine seismic streamer market share.
Cutting prices or putting things on sale is not sustainable business strategy. ~ Howard Schultz
When you start losing market share, it’s really tough to gain it back; you need the product portfolio and presence in many markets. ~ Hans Vestberg
The first seismic vessel I worked on was the 4-streamer Western Atlas (1998). The first ocean bottom cable vessel that I worked on was the Dickerson Tide offshore India (~2000). Neither of these vessels had a swimming pool. To be fair, the wide-tow seismic streamer vessel did not have a swimming pool either. But, the living conditions on that vessel were several grades above both the Dickerson Tide and Western Atlas. I have never been on a Titan class vessel. But, from swimming pools to ball courts, living conditions for rotation work assignments are likely much more comfortable and healthier than my first offshore experiences in the business. Wide-tow streamer acquisition is most advantageous for large rectangular shaped survey areas with no obstructions. Frontier areas. Finding the technical experts to work on long projects offshore is made easier when living conditions are of a high standard. Even this view is indicative of an expanding market in need of the most experienced professionals. Those days are behind and not every survey is in such a frontier area. Many explorers are interested in smaller surveys over mature fields with vessel traffic and offshore structure obstructions all around. In these areas, wide-tow streamer acquisition is prohibitive because the spread must maintain a safe distance from these obstructions. Project survey areas must be large enough so that streamers and their accompanying equipment doesn’t have to be deployed and retrieved too frequently. So wide-tow marine acquisition is not always well suited for multiple smaller sized surveys. In general, wide-tow capable vessels are more expensive to operate. They are most profitable when operating at capacity. This is where the time and cost efficiencies are realized.
The reduced vessel utilization model is customer focused and not vessel operator focused. The benefit of completing surveys more quickly mostly benefits the customer. At the end of the day, unused capacity is expensive and unsustainable in a normal competitive market. Vessel utilization is sometimes shared publicly by vessel operators. The real issue is capacity utilization as it relates to the cost base of the operating assets. If 100 streamers need to be deployed at $10,000 USD a day to break even, then 80 streamers would need to be deployed at $12,500 USD a day to break even. With only 50 streamers deployed, the break even rate would be $20,000 USD a day. When margins are low and if the market is only paying $13,000 a day, the ramifications are that the operator will lose money. Also, if the operational costs do not cover the financing commitments, which may actually be used to facilitate an artificially low operational cost base, the vessel utilization model is not sustainable. The main problem with wide-tow marine seismic is that the bet was placed long before the wheels of the market began spinning. The investment for large wide-tow capable vessels was determined before mid-2014 and no one – seismic vessel operators or license operators – could even predict the market which those vessels would enter. License operators cannot afford to engage in frivolous exploration spending. License operators also cannot really afford a future without a viable marine seismic exploration industry. But, that does not mean that a pre-2014 global fleet has to return. Technology always determines options. The question is whether wide-tow seismic will deliver the solutions to license operator exploration problems?
Markets are shaped by the decisions made by the management of the principal market players. The company with the largest marine seismic streamer fleet is betting on strong demand for wide-tow streamer seismic data acquisition. It is clear that most marine seismic streamer vessel operators miscalculated their bets over two-years ago with their investments in new builds and subsequent stacking several vessels. The industry once again was caught flat-footed when oil prices collapsed mid-2014. The operational streamer count has not changed as much as the vessel count has since before the crash. This is because seismic acquisition companies retain their largest and most productive and efficient vessels. The wide-tow model still dominates the marine seismic streamer business model.
The volatility and uncertainty in the geophysical exploration sector driven by oil prices makes even more sense when people consider the high risk toleration of explorers and pioneers. Such risk taking compels the industry to repeatedly pay the price of rash decision making driven by an uncertain market. The main drawback from such risk taking is its impact on the health and safety of employees. The unpredictable cyclic oil exploration market is exacerbated by the unpredicatable and chaotic responses made during volatile market conditionss. These conditions feed on each other. In the end, the rise or fall of the marine seismic streamer sector will depend mostly on the decisions made by the leaders of companies within that market. It is their intelligent decisions and steady leadership which determines enterprise performance.
The gambling known as business looks with austere disfavor upon the business known as gambling. ~ Ambrose Bierce
Resilience is all about being able to overcome the unexpected. Sustainability is about survival. The goal of resilience is to thrive. ~ Jamais Cascio