WesternGeco Seismic Vessel Amazon Warrior
Toward a New Horizon in the Marine Seismic Streamer Industry
Content Revised 13 November 2013 by Request of Company to Remove their Named Reference
This challenging commercial environment is clearly reflected in the financial statements of standalone acquisition players who are either at or close to bankruptcy, heavily burdened by weak cash flow and high debt….While these stand-alone acquisition players have no other choice than to stay in and fight on to avoid bankruptcy while hoping for a better future, we at Schlumberger do have a choice and we chose to exit the commoditized land and marine acquisition business.~ Paal Kibsgaard, Schlumberger’s CEO,19 January 2018 E&P article
Leaders keep their eyes on the horizon, not just on the bottom line. ~ Warren Bennis
I was in the process of preparing to write another blog article in anticipation of the release of Q4 2017 and full year financials from a conglomerate offshore market players when I learned of Schlumberger’s decision to exit the land and marine data acquisition business. Schlumberger’s CEO, Paal Kibsgaard’s sober analysis of the seismic acquisition market was refreshing in its honesty and should resonate throughout the industry. I began working in the marine seismic business in 1998 on board the M/V Western Atlas. I was lured by the 6-week rotation schedule that, I hoped, would allow me to travel and see the world. (I saw the Gulf of Mexico with Western Atlas, but the industry has taken me around the globe.) I worked for Western Atlas, an offspring of Western Geophysical. Western Atlas merged with Baker Hughes later on, and then merged with Geco-Prakla to become WesternGeco (WG). WG was subsequently absorbed by Schlumberger. The marine seismic business has always been tumultuous. WG was the arm of Schlumberger mostly identified with the marine and onshore seismic acquisition business, where they have occupied a forefront position. WG introduced their two Amazon-class vessels into the fledgling market, Amazon Warrior (2014) and Amazon Conqueror (2015). In 2013, WG had introduced their high-technology IsoMetrix™ 4-component streamer commercially. More recently, it was announced that the US Supreme Court would consider Schlumberger/WG’s claim of technology infringement. Thus, in many ways, WG has left an indelible impression on the marine seismic acquisition market, regardless. It will be interesting to learn how their resources and technology will be dispersed into the new market reality that will follow their exit. In many ways, it is hard to conceive of such a market without WGs presence in acquisition.
The recent Q4 2017 vessel utilization numbers were published at the start of 2018 for two pure play marine seismic streamer vessel operators. WG had operated several marine seismic streamer vessels prior to the mid-2014 crash in oil prices, but stacked many of them. WG no longer publishes vessel utilization numbers, since WG is a relatively small component of Schlumberger. Thus, it would have been difficult to gauge the health of the marine seismic acquisition sector through analyzing Schlumberger/WG anyhow. CGG also reduced their fleet to become more diversified geoscience company. CGG filed for bankruptcy and reorganized and now has much less presence in the marine seismic streamer acquisition market, as well. Many of my blog article posts, which began in 2015, have concentrated on pure play marine seismic streamer company performance to understand the health of the deep water exploration and development sector. Polarcus’ Q4 2017 vessel utilization was 68% and the other company listed 46%, and has further stated that they will reduce their seismic 3D streamer fleet from eight (8) to six (6) operating vessels. Seismic streamer vessels are the data acquisition platforms and therefore the main revenue generators, or the revenue losers, for marine seismic exploration companies. So, while we all must await the Q4 2017 and full year 2017 financials to be released, Q4 2017 cannot be a banner quarter for either of them, based on these already released vessel allocation numbers. Schlumberger/WGs decision to exit the marine and onshore seismic acquisition markets punctuates that no robust resurgence in deep water exploration is anticipated.
On 12 January 2018, the price of oil edged over $70 USD/bbl for the first time in over three years. This generated some excitement, but this news was obviously not viewed as a life-line for marine seismic service companies. In previous blog posts, I mentioned that deep water exploration and development required a risk threshold of a minimum oil price of $70 USD/bbl. Therefore, every dollar above that threshold would represent an opportunity for revenue generation. However, marine seismic exploration players know that oil eking over such an arbitrary economic threshold is not going to create a bonanza of deep water exploration. Every dollar over that arbitrary price may open up more money making opportunities for both license operators and exploration companies. At the same time, every company has their own unique cost base dependent on their business model and objectives which dictates how their resources are managed. This enterprise specific cost base is much different than any project related cost adjustments related to a seismic survey areas geology and geopolitics. The $70 USD/bbl oil price threshold mostly speaks to market stability that supports minimal revenue generating opportunities. The problem is that minimal revenue generating opportunities are not necessarily enough to pay off debt generated from new build programs and past lean quarters. When businesses are growing, new assets and improvements are paid for not only by the revenue they generate, but also through the revenue generation of the older assets. With so many vessels stacked, revenue has to now be generated through fewer opportunities. At the same time, this reduced revenue flow has to pay for the fewer newer and more expensive vessels working for minimal profit.
You can have data without information, but you cannot have information without data. ~ Daniel Keys Moran
It doesn’t matter much where your company sits in its industry ecosystem, nor how vertically or horizontally integrated it is – what matters is its relative ‘share of customer value’ in the final product or solution, and its cost of producing that value. ~ Gary Hamel
Even before the crash in oil prices mid-2014, the marine seismic streamer market really had too many vessels in operation for the required survey work. Because of this vessel over-capacity, many oil and gas (O&G) concession operators became more selective in terms of their requirements in vessel and equipment specifications. For example, several operators would not allow a survey vessel older than twenty (20) years to be tendered in any data acquisition proposal unless such vessels were specially built for marine seismic streamer surveys. O&G operators also had similar age requirements for support vessels. These requirements recognized the underlying health and safety, as well as operational efficiency benefits delivered by purpose-built vessels. However, such requirements are also indicative of operators having the ability to require high standards while also being able to reach their exploration objectives and seize opportunities with a sufficient number of vessels which could efficiently complete surveys affordably. More in-sea instruments being deployed prompted development of improved streamer and source positioning control technologies, which also soon became a requirement for several tenders.
O&G operators, through demanding more stringent vessel and equipment requirements, in certain respects, encouraged the building of newer and more efficient wide-tow capable vessels, as well as the development of supporting technologies. As was also mentioned in previous posts, marine seismic streamer service companies having the ability to complete surveys in less time mostly benefits the operators of the survey area more than the seismic service provider. Vessels sometimes need to re-survey areas for a variety of reasons related to unpredictable weather and currents. When streamers and sources are not positioned correctly, the subsurface cannot be imaged correctly. Data imaging is dependent on correctly discerning the position and geometry between the seismic source (air guns) and the receivers held within the streamer cables. Wide-tow capable vessels towing more streamers (sensors) created new issues in terms of acquiring the correct data. A certain amount of in-fill, as it is referred to, was always anticipated and calculated into the bid tenders. Of course, eliminating in-fill was beneficial to the service provider and operators in terms of time-savings in operating the survey vessel. Especially, in a highly competitive vessel over-capacity market with low profit margins, the use of such technologies became imperative to be commercially successful.
It was recently broadcast (12 January 2018) that the US Supreme Court will consider the issue and ramifications of the unfair global use of intellectual property. This case has to do with WGs Q-Marine™ streamer control devices and ION Geophysical (ION) infringement on the patented technology from their development and sale of DigiFin™ (4 patented technologies). The question revolves around recovering $93 million USD from ION for foreign contracts. ION contends that WG cannot recoup lost profits for the overseas use of ION’s products by ION’s customers, and that lost-profits can only be recouped from a direct competitor. This will be an interesting decision and there are obviously certain merits to both sides, otherwise it would not be heard by the US Supreme Court. I prepared marine seismic acquisition proposals for projects offshore the continent of Africa for a UK affiliate of a Norway based company. This company developed a proprietary dual-sensor broadband capable streamer technology. However, because operators wanted bidding on a level playing field, such innovative technology could not be bid in some cases until “broadband” was also an offering of competitors in the bidding process. Operators resist requesting unique proprietary technologies because they are no longer a competitive bid. So when operators are requiring streamer control capability, they are not intentionally requesting a proprietary technology. Marine seismic service provider bids needed to offer Q-Marine™ or DigiFin™ capability within their bid proposals. However, it was not necessarily regarded as the proprietary technology that won the bid, so much as an adjunct technology to meet the base operator specifications. Operators actually need to also be aware of the specifications that they are requesting and what technologies are available to meet such requirements.
Every exit is an entry somewhere else. ~ Tom Stoppard
If you go long on seismic companies at this point you might want to ask yourself what Schlumberger’s management knows that you don’t? ~ Jeremy Punnett, Stamford Maritime
In many respects, Schlumberger’s exit from marine and land seismic acquisition markets points to the deficiency in the current business model used. While data is necessary in the search for resources, the burden of the cyclic nature of the market is placed mostly on the data acquisition service providers. But, service providers are just that. Operators define the services that they need or want. Operators decide the age of vessels used and even the breadth of solutions tendered. What Schlumberger has learned, as well as the other seismic acquisition service providers, is that there is a gap between what customers ask for and how much they are willing to pay for it:
Kibsgaard added that the company’s customers are not willing to “pay a premium for differentiated seismic measurement and surveys” and “clearly believe that generic technology and performance is sufficient.” This creates a low technical barrier for smaller players to enter the segment, which keeps demand in a chronic state of overcapacity, he said, adding the company’s seismic acquisition business cannot provide the desired full-cycle returns for Schlumberger or compete internally for funding. ~19 January 2018 E&P article
The current procurement process operators use to obtain services needs reformation and improvement. New technologies and solutions are simply being created too rapidly for old and stale procurement models based on a apples-to-apples competitive bidding process. What Kibsgaard is stating is what I learned tendering bids with a breakthrough technology waiting to be offered. Service providers cannot reap the timely benefits from their out-of-the-box solutions, but have to wait for competitors to “catch-up.” Only then, when the market is commoditized and when the only basis for award can be determined to be the final cost of an apple. (I speak to this dilemma within my blog article, Upstream Exploration and the Paradox of Choice (10-May-2015).) However, when the economics suits operators, such requirements can be relaxed or ignored. If the technology has a lower-cost baseline, then, and only then, is the novel solution acceptable for consideration.
What does Schlumberger’s exit from the marine seismic acquisition market say about the markets future? I do not know. But, the WG fleet is composed of many seismic streamer purpose built vessels which they can divest from. These vessels could enter the market at some point, in the same way that other stacked vessels could, potentially, when the market turns. Perhaps WG will license and sell equipment, like their Q-Marine™ and maybe even IsoMetrix™? In the near term for this low-cost commoditized market, companies introducing innovative technologies will be stressed even more. The marine seismic acquisition business model is built around time-efficiently acquiring large swaths of (broad) band data from arrays of 12-16 8000 meter streamers (100 m separation) towed behind large purpose built vessels. These vast amounts of data will be processed on super-computers. Companies pioneering new solutions through committed research and development do not really occupy the low-end/low-cost spectrum of the marine seismic streamer acquisition market. Currently, the majority of customers do occupy this space. On the other hand, WGs exit could send high-end customers to seek such technologies from other seismic acquisition companies. Will there be enough demand for wide-tow vessels towing only innovative broadband streamer technology? Polarcus and Shearwater GeoServices (SG) will fight for the lower end, but new high capacity vessels entering the market will now be a threat for all pure-play players. I still believe that the broadband streamer developer’s chartering of two high-capacity seismic streamer vessels following Dolphin Geophysical’s demise was because of the threat of wide-tow price competition. Broadband acquisition is more operationally expensive. Wide-tow is how to stay cost competitive with high-end equipment or innovative geometries.
The commoditized marine seismic streamer acquisition market will be a lowest-price wins game for the foreseeable future. Clearly, WG/Schlumberger is betting on the added-value component of the market attached to raw data acquisition: data processing, imaging, and analysis. WG does not see the money-making opportunities in acquiring high-end raw data. It was somewhat surprising, as a former data processing geophysicist, to see a marine seismic data acquisition leader restructure-out their data imaging division. Enhanced data processing and imaging is, of course, a huge value-added aspect of any proprietary streamer or data acquisition technology. Some players made calculations and decisions about the market and waited until only recently to down size their operational marine seismic streamer vessel fleets, when other players, such as WG and CGG, did so in early 2015. Being a pioneer means blazing your own course to follow. There is obviously no single reason for Schlumberger exiting the onshore and offshore seismic acquisition market. Recently, the Amazon Warrior halted acquisition due to protests from activists, such as Greenpeace, against the use of seismic air guns and their impact on marine life and cetaceans. In the USA, the President Trump administration has relaxed restrictions for exploration and development offshore. Many states and officials do not agree with these policies, and likewise, there are USA activists preparing to fight opening up their offshore waters, many adjacent to tourist laden beaches, to offshore O&G exploration and development. A company the size of Schlumberger is obviously a big target for such protests. And when the business unit at the forefront of the controversy is also not generating revenue, an exit from such market conditions is even easier to reconcile. What is certain is that WGs exit from marine acquisition will impact the market in some measurable way. It is time for a new business model for data acquisition services. Perhaps WGs exit as a seismic acquisition service provider will force such a conversation sooner than later.
You change your business plan to anticipate and adapt to changes in the marketplace. ~ Jon Feltheimer
If we have data, let’s look at data. If all we have are opinions, let’s go with mine. ~ Jim Barksdale