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Workplace Bullying is an Agency Problem and Often a Crime (1-February-2016)


How the Hierarchal Management Paradigm Facilitates Workplace Bullying and Corruption

Qualification: I have no legal credentials and by no means should this article be regarded as though I do. The Agency Problem is being viewed as a layman from a systems thinking perspective. Corruption is always an Agency Problem. Workplace bullying is an undesirable management outcome from the standpoint of the enterprise (i.e., fictitious legal person – corporation). At the same time, the prevalence of workplace bullying indicates it is actually a desired self-interested outcome of certain agents. This conflict between enterprise objective interests and agent self-interests is an Agency Problem (in the view of this author). However, I would be very glad to hear comments about this from compliance and legal professionals, as well as others. – Steven D. Kalavity  

Criminals usually prey on weakness. They can smell it. ~ Steven Seagal

Bullies are always cowards at heart and may be credited with a pretty safe instinct in scenting their prey. ~ Anna Julia Cooper

Most any target of workplace bullying can easily understand how workplace bullying is corrupt and even criminal activity. There is no single legal definition, but an example of a working definition for workplace bullying is conduct that cannot be objectively justified by a reasonable code of conduct, and whose likely or actual cumulative effect is to threaten, undermine, constrain, humiliate or harm another person or their property, reputation, self-esteem, self-confidence or ability to perform. The ability to perform optimally is clearly the domain and primary responsibility of management. Contemporary literature is replete and nearly conclusive that workplace bullying is bad for business performance. Any intentional interference with this crucial and fundamental objective should sound the alarm to any responsible and conscientious enterprise executive management team. Why doesn’t it? Workplace bullying has been designated the silent epidemic, as it negatively impacts workplaces in every sector of the global economy. This reality points to a conclusion that workplace bullying is a byproduct of the prevalent corrupted hierarchal-authoritative management paradigm where agency actual authority is too often misused. Enterprise governance policy and procedures establish the processes of how decisions are supposed to be made. Every decision is a risk and so the process and constraints which form the decision-making processes define outcome, as well as the enterprise business culture itself. In the article, What Was Volkswagen Thinking?” , author Jerry Useem concludes that culture is the product of decisions. The prevalent hierarchal management paradigm which concentrates the influence of decisions by virtue of authoritative power of a few, and not policy or process performance, is at the root of many of the ills that infect the workplace, such as corruption, fraud, and workplace violence. Similarly, workplace bullying is an Agency Problem whereby agents act beyond their actual defined and prescribed authority contrary to the best interests of the enterprise. Further, workplace bullying is an Agency Problem especially in hierarchal systems with multiple agents assumed to be acting in the best interests of the enterprise. With disproportionate actual authoritative power comes disproportionate levels of responsibility. Workplace bullying is not an individual agent problem. It is a regime or group problem at the very least starting where authoritative decision-making power is most concentrated. In corrupt enterprises, internal governance is ineffectual and therefore toxic behavior becomes epidemic without external constraints imposed (i.e., laws/regulation). Fair markets are predicated on all players playing by the same rules. As with the Butterfly Effect, a single mishandled breach can become a tsunami of enterprise corruption that impacts many interrelated market sectors.

Those opposed to legislation against workplace bullying believe that laws to address workplace bullying directly would undermine business operations. Workplace bullying would need to be well defined, and even then could invite legal or tort claims which could hamper business and the broader free-market ideal. The prevailing view is that business enterprises should be free to define internally – within the scope of the business entity – how products and services are delivered through the enterprises management of resources. Thus, to a very large extent, enterprises tend to be self-governing. The presumption is that the enterprise will properly govern their internal practices. But, this presumption is very often false. Simply, while it is the principal task and responsibility of executive management to make certain that resources are utilized according to defined policy and processes, management is seldom held accountable to such specific measures. Without such a basis, how is the difference between good management and bad management even determined? Most often good management or bad management is arbitrarily decided or tied to enterprise share value performance, rather than the analysis of the processes that actually deliver share value. The primary measure of performance should be based on the adherence and analysis of corporate governance policy and procedures. And then the only way to validate such performance is through well thought out measures and analysis. Otherwise, looking at only the points on the board without understanding the rules and objectives of the game is ludicrous. Executive management establishes the policy, processes, and resource allocation required to deliver its products and services to market within compliance to internal governance and external laws. This is the main role of corporate management. How well enterprises manage these interrelated functions is the baseline to profitability in a fair and free market, and not an aside.

A principal-agent relationship is an arrangement in which one entity legally appoints another to act on its behalf. A corporation is a fictitious legal person. In a principal-agent relationship, agents, such as key executives, are to act on behalf of the corporate enterprise. Agents should not have a conflict of interest with the principal in carrying out their duties. The problem of motivating the agent to act on behalf of the principal is known as an Agency Problem. Agency Problems arise when the incentives between the agent and the principal are not perfectly aligned and conflicts of interest arise. In the corporate agent arrangement self-interests can become in conflict with the policy and principles of the fictitious legal person. The definition of corruption is the abuse of entrusted power. The great fallacy that guides many enterprise agents (high-level executives especially) is that their decision making authority is bounded only by their hierarchal position in respect to the organization. However, their actual authority is vested through corporate charter which is tied to local legal requirements in addition to internal governance policy and procedures. Internal governance and compliance programs do not work for corrupted regimes for the simple reason that self-interested authoritative power is not inclined to impeach their own authoritatively derived decisions. Authoritative power also has the ability to surround themselves with those who they like and comply with and support their own self-interests. Without a verifiable and stable process to gauge performance, performance becomes just a popularity contest decided by those with authoritative power. (“Performance” can be correlated most closely to the relationship between the appraised and the appraiser.) Targets of workplace bullying are vulnerable in such regimes because decisions are allowed to be driven by self-interests and not the actual power vested to them through their agency. This concept manifest itself in devices such as the annual performance appraisal given to for employees. The systems perspective which relies on process control and analysis applies to quality management, and is also applicable to enterprise governance.

Quality guru W. Edward Deming admonished annual performance appraisals categorically, calling such practices a deadly disease for enterprises. Deming studied organizations as a system to be optimized for performance. Deming constructed the Red Bead Experiment which clearly demonstrated several points about bad management practices. Through the use of statistical theory, Deming showed that worker performance was constrained by the system comprised of the physical environment, psychological environment, and of course the processes and interaction of human and non-human resources. Time after time it was shown in real-time that undesired outcome could be attributed to the system 85-99+% of the time and the remainder could be attributed to the employee. However, many organizations punish certain employees instead improving management and the system. This is management by fear, which is a derivative of the misuse of position. It is irrational and biased decision-making with no verifiable basis. It causes chaos in enterprises with its associated unpredictable outcome. It is the no-win situation that too many targets of workplace bullying are placed in. Management is supposed to be improving the production of goods and services through their understanding of the system and processes. This is their fundamental responsibility through their agency and actual authoritative power. Performance management is most often employee focused and not system focused. As such, performance management is very susceptible to the influences of corrupted authoritative power which is subjectively biased with self-interest above enterprise interest. This relates to workplace bullying directly because performance is the ruse often used to facilitate a targets exit. As written in previous posts, the ambush meeting (as described by Dr. Gary Namie, Researcher and Founder of the Workplace Bullying Institute) is the nefarious mechanism used by workplace bullies to expedite a targets exit. Note, workplace bullies are not individuals. They are regimes that cooperate for the regimes interests above the enterprise interests. The intention of the workplace bully is to force the target out of their job. Performance is a legal justification to terminate employment in most jurisdictions. But, performance must be fairly qualified somehow. It seldom is. Too often the only qualification of performance is the subjective edict of the supervisor. In corrupt systems with little process control it is almost certain that performance is not adequately measured or reasonably ascertained. This is especially true of knowledge work. Progressive organizations have finally started to abandon these destructive devices of misused authority driving  “performance” decisions.

Fighting means you could lose. Bullying means you can’t. A bully wants to beat somebody; he doesn’t want to fight somebody. ~ Andrew Vachss

A bad system will beat a good person every time. ~ W. Edwards Deming

Workplace bullying has often been an issue handled (incorrectly, yet by design) through enterprise human resources (HR) functions. As the WBI video states, a high level representative from HR is usually present at the all too common ambush meeting. In this respect, again, regimes cooperate to bypass reasonable practices, and use intimidation and surprise to exercise their abuse of position. HR operates at the behest of senior executives whose collective decisions form the enterprise culture. The prevalent use of this workplace bully tactic also indicates that it is an intentional debasement, as it most likely is not a documented or authorized enterprise procedure. The cooperation of agents to misuse their authoritative position could also be called a conspiracy. This practice of the ambush meeting seems to be allowed and exercised by too many enterprise executives. It is a product of a hierarchal paradigm that allows self-interested decision-making to trump agency authorized decision-making processes. It is then corruption and a form of conspiracy to defraud. Beyond this, workplace bullying is also recognized as a form of psychological violence. What else can one call such an unreasonable surprise tactic in a workplace? Again, such intentional tactics are used to destabilize and distress targets. Going back to the provided definition, workplace bullying is conduct that cannot be objectively justified by a reasonable code of conduct. The ambush meeting represents the culmination of working in a corruptly managed environment. Such an intentionally abusive work environment causes distress as well as a variety of physical effects. Targets of workplace bullying can suffer chronic fatigue syndrome, anxiety, lowered resistance and increased susceptibility to colds, flu, fever and viruses. Workplace bully targets have reported high blood pressure, migraine headaches, back ache, chest pains, hormone disturbances, physical numbness, irritable bowel syndrome, thyroid problems, skin irritations and ulcers. Targets of workplace bullying have a greater risk of heart disease. Vindictive workplace bullies – of which there are many – who evict targets from their current employment also impact future job opportunities. Whistle-blowers are routinely bullied out their careers. Workplace bullying exacts a physical, mental, and financial toll on targets and it is perpetrated by corrupt authoritative power which mistreats employees, and rejects enterprise policy and procedures out of self-interest. It should be a crime, but it must also in all cases be an Agency Problem. Corrupt and toxic enterprise cultures are a product of decisions. There needs to be a change in how decisions are allowed to be made.


Enterprise governance compliance officers are familiar with the Fraud Triangle. The first problem with internal compliance officers is that they are vested and empowered by the regime. While their agency is to uphold internal compliance and not protect management malfeasance, there is often self-interest in play which affect their decisions. In fact, the abuse of position is a category of fraud. The Fraud Triangle can also be called the Wrong-doing Triangle (in this article, anyhow). Again, corruption is always an Agency Problem. For an employee (agent) to do the wrong thing three elements must exists together: motivation, rationalization, and opportunity. These three components are the legs of the Wrong-doing Triangle. The system controls all of these to some extent, but especially opportunity. Executive management, those with the required level of decision making authority, control the performance environment through its resource allocation and use. The Wrong-Doing Triangle can also describe how faulty products or services are output from the system. A quality management system or safety management systems constrains outcomes by reducing or removing the opportunity for the undesirable outcome. This is reducing the risk of undesirable outcomes from the system. This is the same objective for corporate governance compliance systems. There is always a cost-benefit equation to performance which induces employees to take shortcuts which can impact quality and safety outcomes. Ideally, the easiest and most efficient way of doing something should be incorporated into the process and avenues to not follow the process should be more difficult and less efficient. If the likelihood of agents being caught and disciplined were significantly high enough, then compliance programs would be much more successful. Overlooking management failure to abide by policy and procedures, carry out thorough investigations, and otherwise execute governance policy fairly and indiscriminately is either negligence or corruption, but it’s always an Agency Problem. Agents are improperly allowed to make decisions with perceived authority that oversteps the bounds of their actual authority. An agent’s actual authority is legally constrained by enterprise charter, policies, procedures, and local laws and not share value.  The United States of America was formed from understanding the many problems of tyrannical rule. The tendency for authoritative power to become corrupt was also well known.  The abuse of concentrated power was the basis from which the new country created a democratic system which divided power into three branches of government.

It won’t do away with hierarchy totally, but the principal leader will be the person who most exemplifies the kind of organization and behavior required who is best able to create the conditions such organizations require. ~ Dee Hock

Because power corrupts, society’s demands for moral authority and character increase as the importance of the position increases. ~ John Adams

Concentrated hierarchical based organizations not only debases the democratic and free-market ideals, they contribute to the disparity of wealth and the decrease in productivity of the enterprises which they command. Corporate senior executives are the elite in terms of pay and authoritative power. But, they are too often only held accountable to investors. This is a false measure. Simply put, enterprise governance compliance is not a priority to corrupt and abusive regimes and it never has been. Self-interested authoritative power always trumps benign enterprise ideology. And actually, we have a good idea why.   Following the atrocities of World War II the world wondered what conditions would allow normal people to support such horrific abuse of fellow human beings. In an attempt to answer this question, in 1963 Yale researcher Stanley Milgram conducted experiments that demonstrated that ordinary people are inclined to follow orders given to them by a person with authoritative power, even to the extent of injuring and killing a human being. The Milgram Experiment has been replicated many times in many different countries.   In 1971, the researcher Philip Zimbardo followed Milgram’s study with his famous Stanford Prison Experiment which demonstrated how roles defined behavior. Student subjects were randomly placed into roles as either guard or prisoner. Zimbardo acted as warden and allowed the guards to self-govern as they saw fit, excepting that no physical punishment was permitted. Guards with the authoritative power to collectively determine treatment with few constraints imposed soon began behaving in cruel, dehumanizing and sadistic ways. Prisoners suffered intense psychological stress reactions from obeying the demeaning orders from the guards. At the same time, prisoners also became less compassionate toward one another and complied with the guards. Resisters of the dehumanizing treatment were ostracized by fellow prisoners. The experiment was ended in six days. Follow-up studies have concluded that the constraints imposed by the authoritative power in the onset of the experiment can affect results. Said another way, as a systems thinker, established controls and constraints effect outcome.

Enterprises are abstract legal persons operated by many self-interested agents. As the enterprise extent and diversity expands, the odds of aligning these varied interests with those of the legal entity without strong external constraints of the authority that allows their existence is slim. We know this. Leadership defines culture through the action of their decisions. Authoritative power makes decisions and defines what is allowed. It very clearly is projected from where the authoritative decision-making power is most concentrated – at the top of the hierarchy. The decisions made at the top are too often not aligned to the culture described in their corporate responsibility brochures or more importantly within the enterprise bylaws and policies. The reason is really simple and applies to all types of non-compliance, from quality control, safety, and enterprise governance. Outcomes, the measure of performance, must be defined through stable and verifiable processes. Local laws and enterprise process and procedures must always usurp the decision-making process and take it away from self-interested agents who abuse their bestowed trust and authority. Audits and punishments for these regimes must be justified, but be handled external to the enterprise. Breaking the rules of a public trust is a public concern, which is what agency is really about. It should not be so easy and frivolous to breach bylaws and policy for something as innocuous as share value.  The best way to reduce wrong-doing is through developing a system of transparency with routine checks that will reveal the negative outcomes so that processes can be improved. The only real measure of performance is derived from both the appropriate data as well as its appropriate analysis. Agent decisions need to be aligned to processes constrained by local laws and corporate bylaws and policy. An agents legal decision-making authoritative power simply is not authorized beyond this already broad scope. Workplace bullying is an Agency Problem and often a crime because there is no greater self-interest than exercising cruel and health-damaging control through unauthorized power. Internal governance compliance mechanisms are ineffective in most organizations because without external constraints agents are very corruptible. There needs to be external data-based validation to qualify agent decision making. The position on a hierarchal chart cannot mean more than the laws and policies which formed the actual fictitious legal person in the first place. The system should not have the allowance for the abuse of authoritative power built into it. It is no wonder that enterprise wrong-doing is at epidemic levels.  Corrupt and toxic enterprise culture is a product of agency authoritative decision making. We need to change how such decisions are allowed to be made so that they are better aligned with that of the enterprise mandates.

When your values are clear to you, making decisions becomes easier. ~ Roy E. Disney

Whoever fights monsters should see to it that in the process he does not become a monster. ~ Friedrich Nietzsche

Total debt for Dolphin bankruptcies : 6.43 billion – Google Translate (23-January-2016)


I did a quick Google Translate from Norwegian to English – Steven Kalavity

The trustee keeps the light on at the Bergen office , to ensure continued operation in the foreign companies . He has the old management and banks lag.

In order to hedge most of Dolphin – estate bankruptcy , banks have transferred assets to a British company , Polar Ship Invest .

The company is owned by GC Rieber Shipping, and controls Dolphins British business, writes Financial newspaper.

Tuesday wrote that Dolphin Group ASA had 1.77 billion in debt, including 900 million in unsecured bonds, when it was opened bankruptcy of the company.

Status in the wholly owned subsidiary Dolphin Geophysical AS, which finishes with itself bankrupt the same day , is even more discouraging.

“The board has stated that the total debt is NOK . 4653217000 , “the ruling said from Oslo City Court .

Together owe Thus mother and daughter 6.43 billion, according to the Board of Directors of the two companies .

– Should ensure values

The amount is many times higher than what the trustee can hope to realize values in bankruptcy estates .

“The court finds that the asset has a value which is substantially lower than the total debt , so the company is insufficiency ,” the ruling said .

Trustee Havard Wiker has not yet overview of the structure of the debt and assets of the company .

– At this stage, the total size of the debt of little importance for our work. We will ensure that no values are lost , he says to .

Turns not light in Bergen

The first days after the bankruptcy , he has used to get overview, negotiate with banks and ensure that no foreign companies to Dolphin to a halt (see facts) .

Dolphin Geophysical AS has about one billion in bank debt , preferably to DNB and SR Bank

Trustee Havard Wiker have – We have agreed to conduct parts of the group continue to keep the wheels turning , and the banks have guaranteed the estate costs. The agreement runs until we agree on nothing else , says Wiker .

The trustee has not turned off the lights at Dolphins offices in Bergen and Oslo .

– The foreign companies to Dolphin is not directly affected by bankruptcies in Norway , but they are influenced by them because they greatly need administrative assistance from Bergen , he said.

The entrepreneur working on for Dolphin

Therefore , he has asked the management of Dolphin continue to run the company .

– We must use the management company to the operational bit. Then our task to supervise them and get information about numbers here , says Wiker .

Thus, among others Erik Hokholt , founder and CFO until Monday this week, still working for the company he was with and listed for exactly five years ago.

– A small group of us have been asked to assist the bankruptcy estate to secure values in Dolphin. This is a very important work with regard to all the creditors here, says Hokholt to

Seismic equipment may be worth 1/3

Since the Dolphin do not own their ships themselves, the values primarily in the seismic equipment and the seismic library

September 30 this year put Dolphin, according to the latest quarterly report on streamers and other equipment to a new price of 3.38 billion.

The book value was set at 2.23 billion after-downs and amortization.

Analysts’ve talked to, however, estimate that the real value is much lower, because of the low activity in the seismic market.

Estimates range between 850 and 1.75 billion Norwegian kroner.

The boats work continues

The majority of the equipment is still in use in the three GC Rieber carriers, which is still in operation for the company.

According trustee Wiker going ships continue to work until further notice.

More of this? Equal on Facebook!

– We have a contract in Colombia, which we conduct. This has been going on for a while, and it would be foolish to end it.

The latest contract, for nine months in India from November this year, he still has not decided what to do with.

Sure value of seismic library

With banks on teams and equipment in use, raising hopes of avoiding bankruptcy pricing

The second card Dolphin sits with when it comes to values, the multi-client library with seismic data.

This was stated to have a value of $ 164 million, equivalent to 1.43 billion at the previous quarterly reporting.

It was after after the value was written down by approximately NOK 175 million.

Also this record estimates analysts’ve talked to in reality be significantly less worthwhile.

The lowest estimates creeps down to 310 million Norwegian kroner.

Kredittblokkert since last summer

The only certainty about debt in the Dolphin, is that it far exceeds the value.

By the last quarter reporting was the interest bearing debt stated to be approximately 2.2 billion Norwegian kroner.

Last Dolphin raised money in the market, in April this year, by issuing seven million new shares.

Since summer, Dolphins access to borrowed funds in practice, been nonexistent.

Thus there is no reason to believe that the interest-bearing debt has increased particularly since September this year.

Significant intercompany debt

With 2.2 billion in fixed-income, external debt for the group as a whole, and 6.43 billion in debt for the two bankruptcy estates alone, the intercompany debt is estimated to be 4 billion class.

This debt not stated in the quarterly reports, but we take a look at the financial statements for Dolphin Geophysical AS for 2014 makes it clear that the company owed 1.36 billion for the other companies in the group, including the parent company, a year ago.

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 

Oil, IS and Why I have No Fear of Muslims (30-November-2015)


What Being a U.S.A. Citizen Working in Seismic Exploration and Living Overseas has Taught Me about Culture and Tolerance


When religion and politics travel in the same cart, the riders believe nothing can stand in their way. ~ Frank Herbert, Dune

I am a Buddhist and I believe in praying. But humans have created this problem, and now we are asking God to solve it. ~ Dalai Lama

Most understand the significance of petroleum and its connection to politics and the running of the modern world’s economies.  Perhaps fewer comprehend its impact on the regional culture and environment.  The “spice” Melange, which is regarded by many as a metaphor for oil in author Frank Herbert’s science-fiction novel Dune, was at the center of galactic commerce and conflict.  Frontiers of oil exploration very often coincide with areas of international geopolitical and cultural tension and dispute.  On earth, one of the oldest petroleum industries started in Burma – current Myanmar – which exported crude oil as early as 1853.  In the current depressed petroleum-economic climate, there is on-going seismic exploration offshore Myanmar.  The previously reclusive and sanctioned government of Myanmar has further opened-up to international business by signing deals with foreign energy companies for exploration.  When I had visited Yangon years before, the U.S. Embassy was closed and protected by a wall.  U.S. visitors were told to go to the nearby U.K. Embassy for any problems.  I visited the old city of Bagan and took a trip down the Irrawaddy River and it was wonderful experience as a tourist.  I am living just south of the Myanmar border in Thailand these days.  The geographic region “Burma” had separated from India in 1935, but was still under the control of the British Empire.  Japan’s interest in the region during the onset of WWII was for raw materials and rail transport into China.  The modern name, Myanmar, reflects the rejection of the colonial naming which referenced the regional dominant culture.  Myanmar still struggles for its own cultural identity apart from the Indians who streamed into Burma to aid and support the building of the new colony, as well as the British, Chinese and other dominant National influences.

Myanmar’s neighbor, Thailand, proudly exists as a political anomaly in the region.  Thailand was never formally colonized by European powers.  Prior to colonization of its neighbors, the political map was defined historically through a series of invasions and retreats of the different regional kingdoms.  The Theravada Buddhists religious influence is apparent in the many temples that dawn the landscape.  Near the borders and away from influences of the dominant regional language and culture, Hill Tribes wear different fashion, speak different languages and traditionally practice a version of Animism, but also get the attention now of both Christian and Muslim missionaries in addition to the Buddhists.  This cultural anecdote has been played over time on every continent.  A dominant foreign culture overshadows the regional cultural textures and differences of the indigenous peoples.  Within these textures are the established rivalries and alliances which existed long before.  They seem not to exist when viewed casually from a safe cultural distance that ignores the colored histories and instead supplants a new normalcy.  Thailand has assimilated to become a destination for tourists where Western culture and franchises blend with the traditional culture.  Myanmar had resisted such a blend.  Thailand’s King Mongkut (Rama IV) is highly regarded as a wise leader who bargained to learn the language and customs of Great Britain, while retaining national sovereignty.  This leader and his accomplishments have been reduced to a man who learned such sensibilities from a woman who was hired to teach English to his Court.  Anna and the King of Siam, a semi-historical version of this history has been written by the teacher, Anna Leonowens.  However, that an English woman was involved in the Kingly business of Siam – now Thailand – is rejected and the story, along with its several adaptations, is rejected by the Thai people.  Sometimes dominant cultures overlook the histories before their influence changed the cultural landscape.

While working within the marine seismic business over the years, I have lived and worked in many places which were considered dangerous.  Perhaps my wanderlust and curiosity provided me with a halo such that I never really felt too much in danger.  My first overseas offshore assignment took me to the United Arab Emirates, Abu Dhabi.  Abu Dhabi is an Emirate which recognizes Islam as the official State religion, and the calls to prayer throughout the day remind everyone of this.  Because of visa issues, the vessel crew had 3-5 day stays in the city prior to boarding the vessel and working on the project.  The Company did place some restrictions on activities during the waiting period, but there was still the opportunity to get to know the city a little.  The large project offshore Abu Dhabi lasted quite a long time, and at some point I required an update on my offshore safety certificates.  The extended stay in Abu Dhabi allowed me the time to take the courses there.  My co-workers did not need courses and so I took the course outside the group.   As it happened, the course was almost canceled because of low attendance.  But, as there were two us who could share and practice the lessons together, the course continued.  My classmate was an Iranian.   There was little time to speak of politics or religion.  We did not really consider any problems beyond cooperating to solve the practiced offshore safety lesson requirements.  An American (USA) and Iranian were the only two class participants.  We both successfully completed the course only through working together.  Neither of us could have completed the course alone.  In our daily work lives we mostly need to concentrate and cooperate on the immediate issues at hand, and as interesting and significant as politics and religion is to one’s personal lives, their consideration while working is minimal while navigating and processing shot-point data.  I had different onshore assignment processing seismic data at the office in Abu Dhabi where I also interacted with a variety of Nationalities and religions.

I had just arrived to Da Lat, Viet Nam and had wandered into a coffee shop when I was told that the World Trade Center buildings in New York, U.S. had been destroyed along with the Pentagon building! The coffee shop staff had recognized that I was an American (U.S.).  I was in disbelief.  Probably for the first time during my travels abroad, I actually took a taxi specifically to find an internet café as soon as possible to learn more details.  While this was my first visit to Da Lat, I had traveled through Viet Nam before during my time off the vessels.  Throughout my journeys to the different tourist exhibits on prior trips, I had experienced the sobering encounter with the U.S. – my country – history of its past military adventures within that country from their perspectives.  I had seen many photos and displays of equipment and destruction, and visited arrays of tunnels dug during the conflict.  The Viet Nam people – at least through the government tourist sites – seemed to separate the people of the U.S. from its government.  Many seemed to have forgiven the U.S. adventures.  President Clinton had visited and there was hope for the future of Viet Nam re-entering the family of nations for trade and tourism.  The people of Viet Nam were generally concerned and sympathetic toward me and the loss to the USA on 9-11, while at the same time vivid memories were preserved of a less-than-gentle past.

I was working offshore Saudi Arabia near the border with Kuwait when there was the build-up and preparation for military action in Iraq which followed 9-11.  The seismic and support vessels had to pass by several naval vessels – hospital and support ships – on the way to the survey site.  Some of the crew had opted out of that assignment and did not make it to this project rotation.  Military aircraft were seen and heard flying above.  There had been a series of conditions that were put in place to determine whether the project work would even continue.  Whether or not the action was affirmed, or other military activity which escalated the dangers to crew defined the criteria of whether the survey would be completed.  Many of the conditions were in fact violated with the risks being re-evaluated and conditions reset.  Many of the crew were upset, but the rotation completed.  Travel onshore within the country was monitored and secured for the mostly Western crew.  While on the vessels, I worked among individuals from many different countries with different religions, including Islam.  Muslims were co-workers, vessel crew, client representatives, and clients themselves.  The projects were purposed to provide seismic maps to locate oil and gas reserves, and not to hash-out international relations beyond cooperating to complete the project.  Nevertheless, it would have been impossible to ignore the political environment and ramifications surrounding that geophysical survey project especially.

There are two traditions in Northern Ireland. There are two main religious denominations. But there is only one true moral denomination. And it wants peace. ~ David Trimble

Local content carries an expansive meaning, but within the oil and gas industry it is generally recognized as an intervention by a national government aimed at ensuring that the majority of the goods and services required at each stage of the oil and gas value chain are locally supplied. ~ Jubilee Easo and Angela Wallace

On the way to one of my first rotation assignments onshore in Luanda, Angola, the flight was delayed en route (for lack of fuel, of all things), and so there was some chance to get to know other passengers beyond those seated nearby on the plane.  I met South African “miners” who were also delayed.  Not thinking too much beyond simple pleasantries, I assumed they too were involved in mineral exploration of a different sort.  But, these “miners” were on their way to Angola missioned to find undetonated munitions from the long civil war which finally ended in 2002.  Angola had become a Cold War battlefield for over 26 years.  Security for foreign workers was an important consideration given the history.  As a geophysicist and former backpacker who had trekked through many countries, I never felt any danger.  The Luanda seismic data processing center was a friendly mix of Irish, Dutch, Italian, Egyptian, Greek, English, and myself, U.S.A., amongst the Angolan hosts.  The most tension that I ever felt around me while in Angola was during the World Cup competition.  I never really engaged in political discussions while working within the country.  On the other hand, the level of my Portuguese challenged complicated conversation of any local topic.  However, Angola, with its rapid rise as a significant oil producer on the African continent, has not diversified its economy so much and so the drop in oil prices has had an impact.  The office dynamic in Lagos, Nigeria was similarly filled with diversity.  In addition to the international diversity, the office also included Christian and Muslim Nigerians cooperating and working together.  Foreign companies who want contracts for work within both Angola and Nigeria do so under the agreement to provide “local content” or in other words train, develop, and employ people and businesses from the local culture.  Countries now do not want to be culturally dominated and overwhelmed by foreign interests above their own National interests and fend off complete corporate colonization.

Following many rotation assignments on vessels and in West Africa, my first “stationary” assignment was at a seismic data processing center in Kuala Lumpur (KL), Malaysia.  The Petronas Towers is an indicator of the significance of the petroleum industry to Malaysia.  KL is a very culturally diverse city.  While the majority of Malaysians are Muslims, many cultures and religions are officially recognized.  There are more public holiday’s there than any other country where I had worked.  Although, European Union membership mandates a mandatory five-week holiday schedule.  The blend of Asian and Western influence is felt throughout the city.  Like so many countries, including the U.S., one of Malaysia’s celebration days is for when they gained their independence from Great Britain.  The other public holiday’s honor Islam, Chinese, and India traditions.  KL hosts a truly global workforce, many from the oil and gas sector.  As a U.S. citizen, I understood that the hosts in the countries where I worked had different political views from that of the government of the U.S., especially concerning some of the anti-Islamic rhetoric which was a back-drop to the U.S. – my country of citizenship – led invasions of predominantly Islamic dominated countries.  But, just as in Viet Nam, people separate national leadership ideology from that of their citizens.  Perhaps it is because within most countries, citizens deal with the textured differences which are part of their local and national political experience outside the dominant culture.  And this is what one can learn when they place themselves apart from the hegemonic perspective.

It seems too often that people pretend amiability on the big things outside because it is easier than dealing with acrimony in the small differences within.  The ideals of the U.S., through its Constitution, profess religious freedom and tolerance.  While Christianity is the numerically largest classified religion within the U.S., there are hundreds of denominations – types – of Christianity with their own churches which populate every city. Each denomination professes its own unique interpretation of the Gospel and The Holy Bible.  Some interpretations are much different from others, to the extent that within the U.S. and abroad some denominations that also identify as Christian may not consider the others Christian at all!  All U.S. religions are then layered over indigenous beliefs.  In fact, to the extent that Islam honors Jesus as a prophet born of the similarly highly regarded virgin mother, some practicing denominations of Islam on the other side of the world may be closer ideologically, in many significant ways, to one’s own beliefs than those professed by the church across the street.   And of course, the U.S. also is home to a vast population who originned from many different countries and/or who practiced many different non-Christian religions.  And then there are the textures beyond religious affiliation.  Sentiments and resentments from the U.S. War between the Northern and Southern States or Civil War, persists over 150 years from when it was finished.  There are two main political parties, Republicans and Democrats, which compete to hold power within the country.  The Republicans are Conservative, whereas the Democrats are Progressive.  Some profess the balance of power which is derived from States Rights, while another may say it comes from the Central – Federal Government.  These are the textures within the dominant culture (and military) on the globe.  The stated foreign and domestic political strategy and objectives of each party are much different, while the elections which determine which policies prevail may be numerically very close.  And the truth is that every country or religion has a diversity expanding from its own central or professed ideology which intersects and diverges through the cultures which surround it.  And this is why one should have no fear of Muslims.  There is no ubiquitous Islam in the same way that there is no ubiquitous Christian.  These are but surface identifiers which cover textured layers of diversity.  The points of contention are in the details.

Identifiers not attached to actions espoused in the ideology should not count for too much.  If one identifies as a Christian, then certain emulation of the actions of Jesus Christ is expected, not necessarily the wearing of a cross necklace or tattoo.  There are many proclaimed Christians incarcerated for violent non-Christian actions.  The infamous corporate swindler Enron professed core values of Communication, Respect, and Integrity.  Yet, Enron’s own CEO Jeffrey Skilling was convicted on not abiding by those values, amongst other things.  Self-proclaimed identifiers are just that.  I have lived and worked amongst many Muslims and have been treated respectfully and ethically.  I can say the same about Christians, Hindus, and Buddhists.  I have worked within countries whose political history and ideology more closely identifies with the U.S. and for corporate entities espousing lofty ideals, and yet I have been treated horribly.  IS and Al Queda both self-identify as Muslims.  Both denounce U.S. politics, militarism, and culture.  However, underneath the identifier “Muslim”, IS and Al Queda disagree ideologically in several significant ways.  And what does this tell us?  It tells us that identifying and labelling by a broad brush of religious affiliation tells us very little about the individuals or groups culture, beliefs and motivators similar to identifying an individual or group as “Christian”, “Hindu” or “Buddhist”.  It is a shiny easy to spot veneer covering a complex conglomerate of different textures.  But, both the significant problems as well as their solutions exist below that veneer.  There may be many points of disagreement, just as there are many points of commonality.  Without understanding this, a solution or point of agreement for some may differ significantly from others with the same religious affiliation.

Oil reservoirs form below in the subsurface rock formations and trespass the geographic political borders above them.  Oil is also a global commodity for energy production and economic growth.   Because of this, oil and gas exploration becomes not only dependent on the interpretation of geological intricacies which encase the commodity, but more so on the political and cultural environment which define and govern its exploration and exploitation.  More and more nations want sovereignty and control over the development and access to this resource.  An animosity or fear of Muslims is foolish and counterproductive for those involved in oil exploration and production.  Muslims occupy the political space.  The regional and cultural tensions within the political borders of countries such as Nigeria illustrate this.  Nigeria militant group Boko Haram, which translates to English as Western education is forbidden, originally affiliated itself with Al Queda.  However, recently Boko Haram pledged allegiance to the Islamic State (IS).  This is significant because it underscores the ideological and objective differences between the two Islamic groups.  Both Islam aligned groups oppose Western ideology, but also oppose each other because their interpretations of Islam are unique.  Such differences complicate situations in Syria, for instance, where there are no clear or congruent policies which coincide with Western dominated interests.  Both Islamic groups partially fund their activities through the theft of oil in the regions of conflict.  If Western countries conflate Islam through combining both Al Queda and IS as the same Islam when they clearly are not, then more moderate Muslims who wish to be part of the global community are left with little alternative than to stand against such overly simplistic rhetoric.  What is lost with poor generalization is the many textures and differences within Islam.  The West should understand such generalizations simply through reviewing their tumultuous histories of challenging dominant Christian denominations to form their own.  I have no fear of Muslims or Islam because such emotion is too general and rebuts personal experience.  Like oil exploration, the difference is in better understanding the details.  Let’s not forget that.

Those who say religion has nothing to do with politics do not know what religion is. ~ Mahatma Gandhi

We tend to become like the worst in those we oppose. ~ Frank Herbert

3D Marine Seismic and the Problem with Vessel Efficiency (9-November-2015)

Content Revised 13 November 2013 by Request of Company to Remove their Named Reference

Seeing Green in a Sea of 3D Marine Seismic Blues

Volatility may be rising simply because investors must digest more information every day. ~ Alex Berenson

However beautiful the strategy, you should occasionally look at the results. ~ Winston Churchill

Marine 3D Seismic company Polarcus “threaded the needle.”  In difficult market conditions combining 3D vessel over-capacity, low oil prices and anticipation of subsequent reduced exploration spending, Polarcus delivered strong vessel utilization and profit.  How did Polarcus pull it off?  Polarcus’ relatively new CEO, Rod Starr, is clearly a big part of the reason.  He was recruited from TGS-Nopec and began his tenure with Polarcus only last February 2015.  So, kudos to him and his team.  The industry is most likely both impressed and envious of Polarcus’ performance following marine seismic 3D streamer competitor’s earnings meetings for Q3 2015.  Dolphin, performed with negative earnings and were having difficulties meeting the terms for the chartered vessels which allowed Sanco to pursue other agreements.  In another move, Dolphin is evaluating the possible sale of their multiclient library to generate much needed capital.  CGG announced that they would further reduce their fleet to five vessels, down from nine (9), and would reduce personnel by an additional 13%.  CGG’s joint-venture Seabed GeoSolutions performed positively.  CGG will reorganize and reduce their interest in contract acquisition and concentrate on high value multiclient projects.  CGG in their transition process will move away from its emphasis as a seismic acquisition company to becoming an integrated geoscience company.

Even Polarcus’ Starr seemed cautiously optimistic about the future, recognizing that duplicating or surpassing Q3 2015 performance would be challenging, at least in the near-term.  Most marine seismic acquisition companies are recognizing the reality of a prolonged downturn in exploration spending which will continue to severally impact the marine seismic sector.  At the end of Q2 2015 there was a belief that there were about 7-8 (12-streamer) vessels over-capacity in the depressed 3D acquisition market.  Even with the announced reductions there will still be over-capacity, based on earlier predictions, as conditions have continued to head south for the overall O & G industry.  This has made Polarcus’ accomplishment just that much more remarkable.  There is substantial uncertainty in the marine seismic sector.  Right now, the industry’s top executives seem to be investing a lot time and energy in negotiations with financers to subcontractors to arrange better terms which will help them weather the current storm.  With so much volatility, there is virtually no way to predict outcome with any meaningful precision.  Organizations that have a good understanding of their fundamental processes and expected outcomes will be better equipped to navigate these uncertainties.  But, with so many additional changes of personnel and equipment, along with the deteriorating market conditions, there is always increased risks exposure due to the changes made surrounded by such turbulence.

Marine 3D seismic streamer acquisition companies figured out some time ago that towing more streamers would reduce data acquisition time and operational and commercial risk exposure.  By this conventional wisdom, it was reasoned that towing capacity improved efficiency and would reduce the overall project cost.  This is only true to a point.  Investor’s, especially, are interested in knowing what the prevailing day rates for operational seismic vessels are.  Day rates are contingent on many factors, from regional geology and project objectives, geographic location, logistical infrastructure, environmental concerns, and non-seismic maritime activities, to name a few.  All of the fore-mentioned aspects of any project can vary significantly and impact the day rate.  Marine seismic company presenters are unable to answer the “day rate” question simply because it is the variation of project objectives and risks which determine the value of the day rates.  What perhaps is better understood is the vessel cost base.  For instance, charter terms and loan payments are more fixed.  Fixed expenses are predictable.  However, many seismic companies have been visiting investors, banks and lenders to try to renegotiate these terms.  Every home budgeter understands that when expenses exceed income measures need to be taken because such a situation is unsustainable in the long term.  So, the effort is being made to keep expenses down to address the lower spending levels of customers.  Even the vessel cost base is in flux when such term negotiations are in play.  However, there are covenant restrictions which also need to be considered along with renegotiating terms.

Obviously, the highest type of efficiency is that which can utilize existing material to the best advantage. ~ Jawaharlal Nehru

Dominant companies have a special responsibility to ensure that the way they do business doesn’t prevent competition… and does not harm consumers and innovation. ~ Mario Monti

Vessel towing capacity is really only a money maker for seismic companies if it is used and paid for.  There are conditions where there are time-windows when marine seismic acquisition can be carried-out, such as in the North Sea.  When vessels are in short supply and their also is a time window for data acquisition, high tow-capacity vessels can address these concerns and command a higher day rate due to the value of saving time, which can translate into saving money.  But, this is also dependent on the day rate which is influenced by the daily cost base of the operating vessel.  Also, not every contract is priced as a day rate.  Many are priced on an area rate, such as square kilometer rate, for example.  Most contracts have provisions for non-productive time, such as acquisition delays due to bad weather or cetacean migrations, as additional examples.  How such additional costs are distributed also impacts the overall project profitability.  The reality is that even with a relatively high day rate, if a project is completed without another project for the vessel to go to, the daily cost base expense accumulates.  This is why vessel utilization is so important.  Overall profitability is dependent on keeping the vessels busy.  Vessels without projects planned for them lose significant money.  It is cheaper to stack the vessels than to maintain and operate them without a project.  If the vessel cost base is lower, then the customer day rate will also be reduced.

With abundant vessel capacity, offshore license operator companies with seismic streamer data acquisition project requirements now have broader time windows to complete their surveys.  There is less pressure to complete the survey within a time window because enough vessels are not attached to projects.  As long as a lower streamer capacity vessel can complete the survey within the time window, as well as keep its rates per square kilometer lower, vessels with less towing capacity can win work.  If a 12-streamer vessel rate is less than 2/3 the rate of a 16-streamer vessel, for instance, then the two are competitive, bearing in mind the additional risk exposure which may be handled within the contract terms.  Cost pressure may devalue seismic data acquisition and data processing differentiators as well.  If the newer and more expensive higher-end capacity vessels cannot command a premium rate for efficiency, then they lose much of their competitive advantage.   In an over-capacity market, it is vessel utilization which holds the trump card, not towing efficiency.  Finishing work for a paying client with no immediate project to go to, or a long transit, is expensive, especially for the new builds which were commissioned before the dramatic down-turn in oil prices and exploration spending.

The issue is that cost base is being addressed through better charter or lending terms because margins are low, or maybe even negative.  But, depending on charter or lending terms, each marine streamer vessel has to have a low cost base to be competitive.  If operational cost base is at a very low margin, then idle vessels are essentially money losers and have to be stacked.  Stacking will also reduce future CAPEX because working equipment can be used to service vessels retained for operations.  Polarcus brought up this point during their Q3 2015 presentation.  Other players also mentioned that they will use the streamers and equipment from their stacked vessels to equip the leased Sanco vessels, barring no interruption in that transaction.  Dolphin had recently engaged both RC Greiber and Sanco regarding charter terms for their vessels.  Apparently, Dolphin did not make enough profit for the two Sanco vessels to meet their charter agreement terms.  This allowed Sanco the opportunity to charter.

Everyone – especially Dolphin – can bet that the Sanco vessels were not being chartered for free.  We will see in the coming months as the strategy affects the market.  Vessel efficiency is not needed as much as a low cost base in a sustained over-capacity market.  Even with stacked vessels, there seem to be plenty of vessels available to meet the time windows that projects require, in most cases.  Further, exploration programs are usually planned for months in advance.  The charter terms and other payments which establish the cost base combine with tow-capacity and efficiency to create value.  If there is a large differential in the cost base for higher tow-capacity vessels, then there may be no cost savings from completing projects more quickly for the customer.

It is a double-edged sword.  Vessels that can tow large streamer spreads will finish projects more quickly.  However, unless there is another project in-line to go to, there is no substantive financial benefit from such efficiency to the seismic company.  Transits cost time and fuel.  The ideal scenario is to have large projects proximate to each other which use essentially the same streamer configurations and sources.  Such opportunities are rare.  Polarcus has focused on the fundamentals of a fuel efficient uniform fleet where vessels parity allows more flexibility in switching vessels, if necessary, where vessels are closer to projects.  This reduces transit time without impacting technical specifications and objectives negatively.  This strategy was successful for Q3 2015.  CGG, along with Schlumberger’s WesternGeco will focus more on multiclient projects and value added products.  WesternGeco technology is also being used by Dolphin.  Polarcus is focused and not involved with side-shows.  This will help them for Q4 and beyond.  In a tempest, it is the fundamentals that work best to navigate.  It looks as though the storm will continue several more months.

What’s past is prologue.  ~ William Shakespeare, The Tempest

We sail within a vast sphere, ever drifting in uncertainty, driven from end to end. ~ Blaise Pascal

Not So Fast! A Battle for 3D Marine Seismic Vessel Capacity? (Updated) [28-October-2015]

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

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

Previous Post:  Big News in 3D Marine Seismic.  Will Less Mean More?

Marine seismic company Dolphin Group (Dolphin) delivered their Q3 2015 earnings on 28 October 2015.  Dolphin mentioned that it had received a notice of time charter termination for two vessels, Sanco Swift and Sanco Sword, from the owner of the vessels, Sanco Shipping AS (Sanco).  While there was no reason given for the announcement by Dolphin, it is speculated that Dolphin was in charter default.  However, it was stated by Dolphin that they had reserved the right to have the cancellation reviewed.  Wait a minute here!  On 23 October 2015 marine seismic sector rival made a surprise announcement during their Q3 2015 earnings release.  I was stated that they had entered into favorable lease terms for both Sanco Swift and Sanco Sword and would be cold stacking to of their older vessels.  This was in addition to the already announced stacking of another older vessel.  So, what is going on?  Dolphin did not provide vessel utilization / allocation percentages for their fleet during Q3 2015, but indicated that their vessel utilization was negatively impacted by operating permits and delayed contract start-up.  However, what can be assumed is that Dolphin experienced revenue generation problems to the extent that it concerned Sanco Shipping AS enough to venture into negotiations to charter vessels to a rival.  Vessel utilization was weighted toward multiclient projects for Dolphin in Q3 2015.

It was stated that the charter agreement entered into with Sanco Shipping AS would be CAPEX neutral by saving maintenance costs on its older vessels.  There are a couple of mysteries regarding these Sanco vessels.  The main question is how a company that cannot keep its current fleet busy was able to take on the Sanco vessels.  When asked about this, the CEO only said, “Now, what I can say is that Sanco came in a position where they had a right to cancel and we took that opportunity.”  More than that is beyond what we can answer that’s a question to Dolphin or Sanco for that matter.”  Of course, the other question is why really would anyone want to add more capacity to their fleet when there is overall 3D streamer vessel over-capacity and they had fairly low vessel utilization, especially in proprietary contract work?

Additionally, while the company postponed delivery of their fourth and final ultra high-capacity vessel until Q1 2017, they are still scheduled to receive the third new build in Q1 2016.  This will leave them with a number of vessels to find work for in a market which many believe will be very soft until 2017.  By their own estimate, there will still be over-capacity in the market even after cold-stacking their vessels. older. And by chartering the additional Sanco vessels they will have more streamer capacity than before the agreement.  The company also stated that their future will be aimed at chartering vessel capacity and not owning vessel capacity.  Not withstanding the fact that they are the only main player still building and adding significant new capacity beyond their new – disputed – charter agreement with Sanco.  Vessel utilization numbers can also be deceptive in a non-uniform fleet with both 2D and 3D vessels.  A more useful percentage would be the streamer utilization.  A primarily 3D company with work for their 2D vessels, but no work for the same number of 3D vessels would provide the same allocation percentage.

I believe that the ambitious company wants to control and dominate the top-end 3D seismic vessel capacity market and knock-out competition.  The Sanco Swift and Sanco Sword are both capable of towing wide streamer arrays matching their new builds.  In fact, under Dolphin management, the Sanco Sword established a tow-width record.  This in spite of the ultra high-capacity vessels much wider back deck than the contested Sanco vessels.  The 16 streamer @ 100 meter separation spreads are also more efficient and cost effective than the older 12 streamer @ 100 meter separation spread capability.  The Sanco vessels compete directly with the new builds and threaten the primacy in wide-tow capability.


The fact that competitors are both vying for the same Sanco vessels makes for an interesting Q4 2015 and beyond.  There is vessel over-capacity in the 3D marine seismic streamer market.  There will still be over-capacity even with older vessels being cold stacked.  Who loses vessels is now the question.  One company is betting that controlling the upper-end capacity market will put them in a dominant position and that the competition will be forced to deplete their fleets for the weakened market.  It is a gamble.  And it is now more complicated as Dolphin looks prepared to challenge their competitors plans for the Sanco vessels. Exciting Q4 2015, I guess.  Or as it was written in an e-mail to me, “it’s carnage in boat land!”

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.






The Rise and Decline of the 3D Streamer Fleet (24-August-2015)

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


A Quarterly Review of 3D Marine Seismic Fleet Growth

Fragility is the quality of things that are vulnerable to volatility. –  Nassim Nicholas Taleb

Markets are constantly in a state of uncertainty and flux and money is made by discounting the obvious and betting on the unexpected. – George Soros

The Q2 2015 financial reports are in from the majority of marine seismic industry players now.  The news is not too promising.  There is not any near term turn-around in sight.  In such times as these, it is good to remember that the marine seismic industry has had a tumultuous history of which this is only its newest chapter.  Marine seismic companies are formed and then merged or dissolved on a regular basis.  Polarcus was formed in 2008.  Dolphin Geophysical (Dolphin) started in 2010.  CGG merged with Veritas in 2006 and was called CGGVeritas until they renamed themselves back to CGG in 2013.  CGGVeritas acquired Wavefield Inseis in 2007 after TGS’ temptation for vessel ownership fell through.  (Yes, that’s right, TGS contemplated vessel ownership not so long ago.)  More recently, CGG acquired the seismic fleet of Fugro in early 2013.  In 2007, Schlumberger’s WesternGeco (WG), another merged entity which was formed in 2001, acquired the vessels of a holding company Eastern Echo.  Eastern Echo had never even completed a survey.  The industry wide-tow leader has since that time has filed and emerged from Chapter 11 bankruptcy as well as sold off its interests in both ocean bottom cable seismic and onshore operations to focus on marine streamer acquisition and data processing.  However, they have steadily upgraded and added to their fleet introducing ultra high-capacity vessels equipped with 24 tow points.  These vessels, came into production during 2013 and 2014.  The company is scheduled to launch an additional two ultra-high capacity class vessels, in 2016.  Polarcus and Dolphin had been growing and adding vessels to the global fleet as the younger companies in the sector.  Dolphin continued its growth spree until recently when it added its final – for the time being anyhow – high capacity Polar Empress during Q2 2015.  CGG acquired capacity through acquisitions, as did WG.  However, WG also upgraded their own fleet with two new build Amazon class vessels, Conqueror and Warrior, during the past 14 months.  The growth of the seismic vessel fleet was creating fervent competition and cost pressures for contractors prior to the rapid and steady decline in oil prices.  However, the significant reductions in offshore exploration spending exacerbated the over-capacity and highly competitive sector leaving each marine seismic contractor company having to make tough decisions in an effort to stabilize and survive through the current stormy market conditions.  Reduced exploration spending and vessel over-capacity led WG and CGG to decisively announce that they would slash their fleets, aware that Dolphin and their wide-tow leader competitor were still adding new-build capacity into market conditions offering fewer high-revenue generating opportunities.

In such a volatile climate of uncertainty, it is a good time to reflect on the current condition of the marine seismic sector and to consider the strategy and options for the companies fighting for market share.  This article will focus on the predominantly 3D marine seismic streamer companies including, Polarcus, and Dolphin.  These companies will be analyzed from the perspective of operational streamer capacity rather than vessels.  This limited view is for simplicity.  CGG and WG combined control significant 3D marine seismic streamer capacity.  However, these companies are more diversified beyond the 3D marine seismic streamer data acquisition sector and also have already decimated their fleets (and operational streamers).  Similarly, the 3D marine seismic streamer capacity of BGP and SMNG also impact the availability and pricing dynamics of the market, but to parse out the impact of only their 3D seismic streamer components would be challenging.  Predominantly 2D marine seismic acquisition companies are also impacted by the 3D fleet reductions which have replaced their 2D streamer vessels with converted lower end 3D capacity vessels.  It is fair to recognize the analysis as incomplete.  The analysis will concentrate on the changes of streamer capacity from the beginning of 2014 and project those dynamics into 2016.   Figures 1 shows the streamer vessels and capacity at the beginning of 2014.  Figure 2 shows projected streamer vessel capacity of the global 3D marine seismic fleet into 2016.  The maximum streamer spread was capped at 16 streamers, assuming normal NAZ configurations with 100 meter separations.  Also, WG does not publish too many details about their fleet.  Therefore, except for the two Amazon class vessel, the other vessels remaining in their fleet were assumed to be 12 streamer capacity and a 40% reduction of streamer capacity from 2014 to 2015 (projected into 2016).  It is important to emphasize that these tables contain estimated values only, but are based on published information.

 Figure 1   Global 3D Seismic Streamer Capacity 2014 (estimate)

Figure 2   Global 3D Seismic Streamer Capacity 2016 Projected Estimate

Polarcus, Dolphin and their competitor have all decided to stack vessels and remove streamer capacity from the market more recently.   The competitor will stack their two older special class vessels.  They have also entered into a lease-back agreement for an older conventional 10-streamer capacity vessel.  However, they will still operate this 10-streamer capacity vessel.  Recently, they related that they believed that streamer capacity still needed to be reduced by 15% to stabilize the market. From the presentation, it was not clear what baseline they referred to.  Yet, in Q1 2016, they still will be receiving their ultra high capacity vessel, and in Q3 2016 another one is scheduled to be delivered.  Polarcus decided to stack their vessel Nadia.  Dolphin will convert one of their 3D vessels to 2D.  Dolphin also received delivery of Polar Empress and plan to review or renegotiate lease terms for the vessels which they operate and maybe reduce their fleet further.  All three of these companies have different business models which impacts how they can respond to a climate of reduced exploration spending and very competitive pricing with lower margins.  However, what Tables 1 & 2 indicate is that even following the stacking of many vessels, the estimated aggregate impact of fleet reductions will amount to between only 20-25% less operational streamers in the global fleet.  This is due to the fact that many older vessels with lower streamer towing capacity are being retired while the new vessels with higher towing capacity are being introduced simultaneously.

Streamers are effectively the revenue generators for seismic data acquisition companies.  It is the data collected from the sensors which is ultimately sold to offshore license operators.  The vessels are the vehicles which move the sensors to where data needs to be measured.  One of the disadvantages to reducing fleet sizes is that with fewer vessels it is more difficult to have vessels close to surveys which thereby increases the steam time for vessels to reach new projects.  This is an added expense.  On the other hand, lower priced oil also reduces the costs of such transits.  Vessels move from one project to the next with each survey having their own special constraints and challenges, as well as pricing models.  To simplify analysis, fleet streamer performance is normalized to the number of operational streamers for each financial quarter.  There will also be a change of perspective of how company financial performance is viewed.  Quarterly EBIT (Earnings Before Interest & Tax) is an indicator of company profitability and long term interest bearing debt (DEBT) is an indicator of a company’s liability.  These values have been graphed for each financial quarter along with the estimated fleet streamer capacity count during the financial quarter, Polarcus (Figure 5), Dolphin (Figure 6), and competitor (Figure 4).

Don’t be seduced into thinking that that which does not make a profit is without value. ~ Arthur Miller

Figure 3   Wide-tow leader Quarterly Financial Performance and Streamer Capacity


Figure 4   Polarcus Quarterly Financial Performance and Streamer Capacity


Figure 5   Dolphin Quarterly Financial Performance and Streamer Capacity

Since it is the streamers which are effectively the revenue generators, the quarterly EBIT and DEBT will be related to the number of streamers in operation.  From this, the EBIT/streamer and DEBT/streamer are calculated for each financial quarter.  These are graphed in Figures 6 & 7.

Figure 6    Quarterly EBIT / STREAMER

Figure 7   Quarterly DEBT / STREAMER

Analysis – Summary 

Oil prices continue to fall with no stable plateau – up or down – in sight.  Although, a six-year low in crude oil trading values was reached last week, few analysts have predicted a return to oil prices to over $70/bbl in early 2016.  Oil over $100/bbl is what spurred the increase in streamer capacity in the first place, and is even further away.   Oil majors are continuing to downsize entering Q3 2015.  The negative revenue generation per streamer as seen in Figure 6 seems to confirm an over-capacity market.  Lower pricing brought by fierce competition, longer transits, and reduced spending is making it difficult for fleets to make money.  So, what adjustments should be made?  The impact of the latest fleet reductions may provide opportunities to allow remaining streamer capacity to earn positive revenue.  There do seem to be some improvement of opportunities from Q1 & Q2 2015.  But, most expect 2016 to continue to be challenging.  For Q3 & Q4 2015 the global 3D marine seismic operational streamer count capacity, without more vessels being stacked, will be around 550.  If there still remains 15% over-capacity in the global market, as was related in some reports, then 6-7 more 12-streamer vessels will need to be taken out of production to stabilize the work-streamer capacity balance.

Reducing capacity also reduces revenue generation potential, as well as adds expense, albeit less than keeping a vessel with no paying work operational. The market capitalization, as noted in the reduced share prices, has reduced dramatically for all companies analyzed.

Even with clear signs that there needs to be further reductions in streamer capacity, companies also need to maintain a certain number of efficient vessels to remain viable in the global market, as transit costs will eat away at operational efficiency and cost cutting measures.  And then there is the elephant in the room.  Two additional ultra high-capacity – approximately $285 million each – will be entering in only a few more months. How will a low price market support these high technology introductions?

Dolphin is betting on operational excellence, along with clever maneuvers managing vessel terms, as Dolphin charters its vessels.  There is dealing with the debt attached with vessel ownership.  Every single one of the 3D marine seismic streamer players are concentrating on cost cutting.  License operators may be in the position to decide the terms and survival of the 3D marine seismic streamer companies.   Less spoken about is the impact downstream from fewer lower streamer capacity.  There will be less data processing and imaging, as well as further analysis with less data in the pipeline.  Operational excellence and trusting relationships with strong commitments to serve customers will be critical.  The next few months will be both interesting and of the utmost importance for all the players.  And with that, Godspeed into the storm.

The will to persevere is often the difference between failure and success.  ~  David Sarnoff



Full into the Storm: Where is Marine Seismic Heading? (28-July-2015)

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


“Prediction is very difficult, especially if it’s about the future. – Nils Bohr

One marine seismic acquisition company posted Q2 2015 numbers on 23 July along with their prognosis of the marine seismic sector market.  Vessel utilization and contract revenues and margins were negatively impacted along with more idle time than expected.  This player foresees low oil company spending and an uncertain marine seismic market well into 2016.  In response to this, the company will be cold stacking their two oldest special designed vessels in Q3 2015, and have entered into a lease back agreement for a 10-streamer vessel.  However, this will only temporarily relax the continuing over-capacity dilemma that marine seismic acquisition companies are facing.  The company is scheduled to receive their third ultra high-capacity vessel in Q1 2016, followed by another in Q3 2016.  Primarily 3D marine seismic streamer companies, Dolphin Geophysical and Polarcus, are scheduled to present their Q2 2015 number in August.  This will be a challenging time for a player who will again be introducing new capacity into an over-capacity market.  Even if exploration picks-up significantly toward the end of 2016, many other contractors have stacked capacity that could relatively easily re-enter the market.

Dolphin Geophysical towed a 1,850 meter wide spread claiming a record.  Competitor CGG immediately challenged the record boasting their own record of 13.44 square kilometer spread.  While both impressive to those in marine seismic operations, the reality that has to hit home is that vessels have the ability to tow wider spreads than ever before, completing surveys more  quickly, and therefore putting additional pressure on vessels to find even more paying projects.

“The greater the difficulty, the more glory in surmounting it. Skillful pilots gain their reputation from storms and tempests.”– Epicetus

Most all agree it is a challenging time in the marine seismic streamer acquisition field, as well as in the wider O & G business environment.  The collective of corporate wisdom shows that the companies which fare best during such times of challenge are those that possess a strong sense of self and purpose.  The companies that will navigate this current perfect storm and rise are those with strong core values which will transfer into high trust business relationships.  Without these strong values so crucial to driving the necessary high levels of performance, companies will suffer.  Growing social capital created through an environment of trust, knowledge sharing, and shared norms is key to building such resilient teams and businesses, according to entrepreneur, consultant and speaker Margaret Heffernan and other thought leaders.  From a systems thinking perspective, such an environment provides a stable basis to form collaborative networks essential in informing and executing business strategy decisions effectively and efficiently.

The crucial imperatives of health, safety and the environment cannot be ignored.  Operational optimization and process improvement of performance and efficiency will need to continue, but be monitored even more carefully during times of change in the resource and process dynamic.  It is during such times of change when accidents and all other risks increase.  The same key communication networks that optimize the processes that bring growth have to be maintained.

But, with an uncertain future, oil and gas prices and operator priorities are still dominating the horizon with an already over-capacity of seismic vessels, the marine seismic sector is being impacted from support vessels and services through to imaging.  The once bright spot of troubled economies and job creation, the oil and gas energy sector, is no longer the bright spot that it had been.

“We are continually faced by great opportunities brilliantly disguised as insoluble problems.” – Lee Iacocca

Job loss from restructuring and adapting to the new oil and gas sector reality is now settling in. The industry “experience gap” is exacerbated by the fact that many organizations do not do the best job of retaining and cataloging knowledge.  Organization knowledge residing in the heads of staff is less tangible and reliable than accessible well written and detailed project reporting and event chronicling.  And now, many knowledge repositories are leaving; through reductions, retirements, or interests outside of O & G.  Now with data storage not being expensive, data organization is required.  This should be a top priority of any organization determined to weather this current storm and rise out of it.  With other sectors of the economy recovering, it is a good time to remind employers that O & G workers have been on the leading edge of technology as well as health and safety.  It is a good time to add technically savvy and safe people to cross pollinate and add knowledge and expertise into a number of enterprises.  Through focus and cooperation around the board the marine seismic sector will pass through this current storm and arrive more efficient and effective at exploring for the energy that every sector requires to grow, human as well as petroleum.






Revisiting Deming (19-July-2015)


Applying ISO 9001:2015 QMS within a System of Profound Knowledge

Quality begins with the intent, which is fixed by management. — W. Edwards Deming

Edwards Deming (c.1900-1993) is indelibly associated with quality management, and rightly so. However, his ideas on quality are interwoven within his broader theory of management and leadership which focused on four interrelated areas: appreciation for a system, knowledge of variation, theory of knowledge, and psychology. Deming called his transformative approach to management and leadership the System of Profound Knowledge (SOPK).  Deming was a critic of the prevalent western style of management and leadership which he believed led to a road to ruin for enterprises and workers. Deming was a champion of the worker.  Through his presentations, papers, and books, he demonstrated empirically and simply the flaws in the western management paradigm.  He believed that workers, societies, and economies paid a steep price for such flawed management and leadership practices.  As the world continues to emerge from economic recession, perhaps it is again time to revisit the Deming SOPK and consider its application within complex organizations applying advanced technologies to deliver products and services.  Can a bridge be built from SOPK to the combining of improved management system standards and methodologies such as ISO 9001:2015 Quality Management System (ISO 9001), and knowledge based risk management techniques?

Deming was a scientist and mathematician with a sharp mind who was able to recognize and understand complexity while at the same time adept at reducing such concepts to a more understandable level.  He was formally educated as an electrical engineer and later specialized in mathematical physics.  (He was an assistant professor at Colorado School of Mines at one point early on in his illustrious career.)  Deming made impressive contributions in his work with the United State Department of Agriculture and the National Bureau of Standards advocating and then applying statistical sampling methods.  While working at the Bureau of Census Deming was introduced to scientist and statistician Walter Shewhart.  Shewhart had a strong influence on Deming.  Shewhart was a pioneer of Statistical Process Control as well as the (now) often referenced Plan-Do-Check-Act cycle.  Through their collaboration Deming helped make Shewhart’s work more understandable to a wider audience.  Shewhart worked with Bell Laboratories searching for ways to minimize variation of products for the expanding telephone industry.

Deming was recruited during World War II to teach courses in these techniques to engineers and scientists.  These courses were very beneficial in improving the quantity and quality of war time production.  During the war, at least temporarily, U.S. industry was steered away from the less effective traditional scientific management techniques.  Following the war, in 1947, Deming begin his work in Japan.  Even though the ideas he taught the Japanese were first formed in the U.S. and to a great extent influenced the outcome of the war by making the U.S. a mass producer of reliable equipment which overwhelmed the armies of adversaries east and west, his teachings never resonated the same in the U.S. and Europe as they did in Japan.  Within the crucible of a war torn Japan desperate to extricate herself from industrial destruction and despair, Japanese industry was able to learn, practice, and improve.  Deming, along with other prominent thinkers of quality from outside and inside Japan, taught and refined the fundamentals of quality management which lead to Japan becoming the second largest world economy by 1978.  It was especially during the years working with Japan that Deming observed, studied, and learned what factors drove quality and refined the SOPK.

Without a standard there is no logical basis for making a decision or taking action. — Joseph Juran

While Japan’s economy was accelerating and moving forward following the end of the war, this was not true in the west.  Western industry was losing its competitive edge.  It took some time for other economies to address this issue.  Eventually, nations such as Great Britain decided to emulate what the Japanese were doing.  In 1982, Britain revised their BS5750 Standards, Quality, and International Competitiveness.  BS5750 was the precursor the first International Organization for Standardization (ISO) 9000 series of standards for quality management systems which were released in 1987.  In America during the 1980’s the Total Quality Management (TQM) methodology, modelled from the U.S. Department of Defense techniques, addressed similar concerns.  In Deming’s book Out of the Crisis (1986), he formally presents a culmination of his lessons and instruction for organization’s to be competitive and survive in the new reality of delivering products and services if organizations are to survive and thrive in the competitive climate of (future) business.  The ISO 9001 standard is used by organizations to demonstrate their ability to provide product and services that meet customer and regulatory requirements, or put another way, to deliver “quality”.  Since the initial publication of ISO 9001:1987, the standard has been revised three times: ISO 9001:1994, ISO 9001:2000 and ISO 9001:2008.  The newest version ISO 9001:2015 is currently in its final stages of revisions is expected to be released in September 2015.  Technology in an ever more competitive business environment has been an important motivator for organizations to improve the way that they deliver products and services for customers.

Draft revisions of the ISO 9001:2015 standard have been circulating over the past months.   The revised standard is advertised as a format for the next generation that will apply for twenty-five years.  Some key changes to the ISO 9001:2015 (draft) standard are that organizations need to understand the context of their QMS along with establishing a systematic approach to risk.  Organizations will need to determine what strategic objectives their QMS is intended to achieve.  This is important because it now is incumbent on organization leadership and management to understand their QMS beyond only achieving certification itself as an objective.  Organizations cannot benefit simply through attaining certification, the system needs to be well led and managed to deliver its objectives.  ISO contends that “risk based thinking” has always been implicit to the ISO 9001 standard.  The continual improvement of processes through planning, auditing, analysis, and action has always been in respect to delivering products and services that met customer expectations in the most effective and efficient way possible.  However, it is more directly addressed in ISO 9001:2015.  ISO 9001:2015 will now require organizations to identify both risk and opportunities that impact the performance of their QMS as well as define actions to address the identified risks.

Both ISO 9001:2015 and the SOPK are grounded in system based thinking.  A system is composed of interrelated components such as company culture, product or service complexity, resources, and processes.  Quality is the optimization of performance for all of the components relative to the objectives of the system.  With respect to ISO 9001:2015, context is the business environment, such that leaders and managers of the organization consider both the external and internal influences that impact the organizations strategic objectives before they develop a quality management system. As the ISO 9001 standard is generic, how it is applied is specific to the organization’s products and/or services.  Quality is essentially optimizing the performance of the system that produces the output product or service.  The optimization of performance is mostly determined from outside the system by how the interdependencies are coordinated and managed.  In this respect, the greatest risk to quality is system management.  Appreciation of the system is management understanding that every decision is a risk because it determines the components which form the constraints or context which impact overall system performance.

Deming did not believe that traditional (western) management practices allowed optimum system performance to be realized.  He believed the traditional management paradigm needed to be transformed.  Likewise, each iteration of the ISO 9001 standard has placed greater emphasis on top management engagement and understanding for how their organization manages quality.  In parallel to the changes in ISO standards, there has been realization that workers in the information age should not be managed the same as workers from the industrial age.  While the ISO 9001 standard works well in team based, knowledge sharing work environments with appropriate training and development which support the delivery of customer focused products and services, ISO 9001:2015 does not mandate a particular management structure.  Deming listed fourteen points for transformation that leadership and management would need to practice for the benefits of incorporating a SOPK to be fully realized.


We must learn our limits. We are all something, but none of us are everything. — Blaise Pascal

Key to optimizing system performance is management understanding variation.  Processes are optimized when the output product or service shows no variation.  (No variation can never really happen in the delivery of products or services because there is always some variation in the system and process components that impact output.)  Special cause variation are one-off assignable events, like accidentally dropping a glass.  Common cause variation is sometimes referred to as the noise or natural pattern and are historical and quantifiable process variation.  If 1% of the glasses emerging from the glass making machine come out of specification, this would be common cause.  Special causes can become common causes if different workers accidentally drop glasses over time to the extent that it could statistically predicted that a certain percentage of glasses will be dropped and become out of specification.  The challenge for managers is identifying whether the variation is common cause or special cause and then improving the process accordingly.  Shewhart’s control charts would establish the limits to be within specification and it would also be expected that 1% would be outside specification.  The significance in understanding the cause of the out of specification glass is especially relevant to the worker.  Managers often rate workers poor performance based on common cause variations.  Deming has demonstrated this with his Red Bead Experiment.  What he concluded was that the system is responsible for over 85% of the out of specification production.  Blaming worker performance based on the random outcome of management designed processes is demoralizing and can actually negatively impact production.  In reality, workers have substantially less impact on the system performance. If a worker fails because of performance, over 85% of the blame is due to system management.  The concept of variation applies to auditing and managing ISO 9001 as well as the SOPK.  However, the SOPK reinforces why transformation is required.  In traditional management performance issues are not being addressed properly because system thinking is not in place.  Deming also identified “seven diseases” that impede organization transformation.


In order to properly understand the big picture, everyone should fear becoming mentally clouded and obsessed with one small section of truth. – Xunzi

Knowledge is the most important element of the SOPK in my view.  Deming cautions that we cannot mistake information for knowledge.  A room full of books holds a lot of information.  But, only after the information is organized and accessible to be used does it become a library of knowledge.  The study of knowledge is directed to improving the system.  There needs to be understanding of the historical components of the system to be able to form the basis to change the certain components of the system and also predict the impact of the change and expected improvement.  In the information age that we are living in now substantial amounts of important information often remain unshared and therefore unknown and inaccessible in forming evidence based decisions that reduce risks.  Losing experienced workers is essentially tantamount to losing access to knowledge.  The key to reducing risks and uncertainty as well as improving the basis of decision making is to organize and make accessible organization knowledge.  Silo organizations must be transformed into organizations where knowledge is no longer hoarded but easily shared.  In complex organizations decision makers need to have confidence that they are referencing the most current and high fidelity knowledge to form decisions.  Improved decision making processes is what risk based thinking boils down to.

Organization success and sustainability in the information age comes down to improving business performance for competitive advantage.  Traditional management paradigms of command and control structures over individual workers impede knowledge flow and process improvement.  To improve organization performance requires systems thinking which challenges the notions of the super or terrible worker being at the core of organization success or failure.  System thinking involves all workers coordinating and optimizing processes.  Performance is driven by effective and efficient processes.  Stop blaming workers for the poorly designed processes which they have no control over and concentrate on continually improving processes with worker contribution and job satisfaction and productivity will rise.  Deming believed that a transformation from traditional management paradigms was necessary for sustainability.  ISO 9001:2015 embraces many of the SOPK concepts.  Integrated understanding of how the system works along with what the objective of the system are is fundamental to improving performance.  Being able to recognize the causes of variation in processes will guide improvement of the system.  Improvement needs to be guided by historical and contextual knowledge of process performance and constraints which will inform decision making and reduce risks.  Deming was correct that business in the information age needs to be managed differently it was during the industrial age.  Managing the scale and complexity of organizations and the goods and services which they provide requires a new type of management based on systems thinking.  Deming proposed a transformation to a system of profound knowledge to achieve quality.  ISO 9001:2015 is comprised of the combined knowledge of many of the great thinkers of quality.  How an organizations QMS is managed is of paramount importance to realize improved performance.  Using the SOPK as a guide, an struggling economy known for producing poor quality goods and services transformed to a leading economy praised and copied for its high quality.  It is time that we revisited the methods and lessons which contributed to this transformation once again.

Improve quality, you automatically improve productivity. — W. Edwards Deming


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