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

What is the Future of Marine Seismic Streamer Acquisition?

The history of life is a tale of decimation and later stabilization of few surviving anatomies, not a story of steady expansion and progress. ~ Stephen Jay Gould

Capitalism without bankruptcy is like Christianity without hell. ~ Frank Borman

Last year (5-May-2015) I wrote an article on LinkedIn Pulse™ The Seismic Vessel Over-Capacity Problem to frame the unique issues of the marine seismic streamer sector from the broader oil and gas sector. The article initiated my writing pastime and has been followed by different articles concentrating on this sector where I had worked since 1997 and continue to follow today:

The current O&G downturn is now being compared, in some ways anyhow, to the slump during the 1980s. The marine seismic sector hardly existed in the 1980s. And so this downturn is unique from that perspective. There is a historical correlation between oil price and exploration activity. Through the years that I have worked in the marine seismic sector, since 1997, there have been many technology developments along with companies to provide marine seismic surveys. Marine seismic companies come and go. It is a very competitive business. Marine exploration must deal with weather, currents and tides that create limited time windows of opportunity for data acquisition. In the drive for competitive advantage vessels have been designed to tow more streamers and acquire more data under more extreme environmental conditions in a shorter time span. Time is money and the cost per square kilometers of data acquired is reduced by completing surveys more quickly. But, the standard of what constitutes “good” data has also moved ahead. In a stable supply-demand scenario, vessel availability to accommodate these windows of opportunity is critical. Accommodating these requirements could command a premium. But, vessel over-capacity does not allow for as high a premium. The other issue is that new technology and computing algorithms allow for multiple vessels to acquire proximate to one another and not interfere as much. There is less “time-sharing” required by vessels in the same exploration area so multiple vessels can all work with less down time within these windows. In one of the active areas for marine seismic exploration, offshore Myanmar, three vessel spread records have been made during 2015. However, this mostly means that surveys can be done more quickly with less vessels working. The truth is that there has been a marine seismic streamer vessel capacity problem long before the collapse in oil prices that occurred in the middle of 2014. But, what we have now is declined demand combining with vessel and technology problems that exacerbate the problem. It will be a long 2016 in the marine seismic sector.

Within the previously posted articles I had concentrated on marine seismic streamer pure players, Polarcus, and Dolphin Geophysical (Dolphin) to gauge offshore exploration. Schlumberger’s WesternGeco fleet capacity is significant enough to impact the marine seismic market sector, to be sure. However, because of Schlumberger’s size and operational services diversity, WesternGeco vessel utilization can be more strategic. Schlumberger has several revenue streams beyond the marine seismic streamer sector. This may be one of the reasons that WesternGeco does not broadcast their fleet or report utilization numbers. At the same time, it is a market that WesternGeco competes in. WesternGeco added two new build Amazon class vessels.  CGGVeritas bought Fugro Geoscience and assumed ownership their 3D streamer fleet of vessels in early 2013. After this acquisition the company renamed to CGG. Dolphin had brought in high-capacity charter capacity through Sanco Shipping. Polarcus’ fleet did not add capacity since the decline. There are other players offering 3D seismic that in some ways are even more relevant now. But, the main point to be made is that there was a lot of capacity being added at a time of over-capacity. There likely would have been less cost-efficient vessels taken out of operation once all the new builds and added capacity competed. But, the decline in oil prices and exploration spending expedited the process of attrition.  This is most certain.

The marine seismic streamer fleet has been decimated from its pre-slump count before mid-2014.  If and when conditions do change WesternGeco will be able to reintroduce capacity.  CGG went from operating twenty-two (22) seismic vessels after obtaining Fugro Geoscience to only five vessels targeted by end of Q1 2016. CGG have stacked vessels since announcing their plan for a reduced fleet during 2015. CGG is also embarking on a new diversified business and has stopped reporting vessel utilization statistics. CGGs buying Fugro Geoscience eliminated competition and added newer more efficient vessels into their fleet at the time of growth without the wait time of new builds. They clearly were not the only bullish marine seismic vessel operator. Dolphin saw both its rise and fall in a relatively short time span. Dolphin started in 2010 and in December 2015, parent Dolphin Group ASA filed for bankruptcy in Norway. Liquidation has now began in its Singapore affiliate.  However, Dolphin is still involved in some operations through its other affiliates outside of Norway. In 2011, GEO Expro ran the article, Do We Need Another Seismic Company?  Dolphin grew rapidly and had impressive accomplishments in acquisition. The article reiterates the volatile nature of the marine seismic streamer sector. Polarcus did reduce its fleet after the decline and stacked one of its vessels. Like all the players, marine seismic streamer vessel operators especially have reduced cost, head counts, and sought more capital and better terms to survive.

Change:

Everyone has a plan ’till they get punched in the mouth. ~ Mike Tyson

Trying to predict the future is like trying to drive down a country road at night with no lights while looking out the back window. ~ Peter Drucker

Dolphin’s fleet expansion was in many ways necessary to be a global player. Smaller fleets have the problem of losing money through long steams. One aspect of a uniform fleet is that operators may not have too much opposition to contractors who switch similar, but strategically located, vessels to perform work. However, if the technical specifications differ too much, the entire contract and technical considerations may need to be reviewed for the operator to honor such a switch.

The three principally 3D marine seismic streamer companies that owned/chartered and operated their streamer vessels were generally analyzed in previous articles: Dolphin, Polarcus, and (). There were always caveats to the analysis which ostensibly left out significant capacity. But, it was food for thought, anyhow. It is not really a surprise that one of the three players did not make it through this significant downturn. After all, many marine seismic companies have faded into memory before. While it would have been nice to see the competition of business models and solutions reduce their fleets all in a similar balanced way, the odds, just from a historical perspective, were greatly against such a scenario. Survival has had much more to do with company debt re-structuring and credit instruments to weather the downturn than geophysics, as such. Business is business after all. Dolphin is out, although its previously chartered GC Reiber vessel will be acquiring for a multiclient project (Searcher Seismic).  And WesternGeco will continue to manage a strategic fleet within its more vast O&G service offerings. Most everyone seems reconciled to accept that operator exploration spending will be significantly reduced as the forecast of lower oil prices in prolonged. Speaking generally, operators may put projects out to tender 3 months before acquisition in order to secure vessels are available for their planned projects. When oil prices plunged, some projects were already in the pipeline and had been committed to. As prices continued to remain low and at uncertain levels, planned projects are likely shelved.  For offshore exploration, the exceptions are attached to license commitments.  However, some operators have pulled-out of offshore contracts and taken the loss rather than pursue the expensive offshore projects.  Few, if any, adventurous projects are being considered. O&G operators have piled losses from the steep decline in oil prices and they now have to consider exploration spending very carefully in order to not lose license opportunities, meet current commitments, and reduce exploration risks.

Polarcus will operate five vessels.  What Dolphin demonstrated while it was in operation was an ability to tow wide configurations with fewer streamers, but with wider streamer separations. Polarcus’ fleet is uniformly composed of X-Bow designed vessels. Polarcus recently set the areal largest configuration with 10-streamers at 200 meter streamer separation. For frontier type acquisition certain operators apparently are satisfied with broader spacing and reduced resolution for final imaging. On the other hand, processing algorithms with interpolation can enhance final deliverables. Also, algorithms to isolate / remove source artifacts on shot records allows for longer records being recorded. Such source processing has advanced the standard dual-array source configuration that allowed two (2) subsurface data lines for each streamer (mid-point between source and receiver on streamer) to where three sources can be used creating three (3) subsurface data lines for each streamer. This is another acquisition method that is challenging previous data acquisition and processing techniques.

You can never plan the future by the past. ~ Edmund Burke

All men can see these tactics whereby I conquer, but what none can see is the strategy out of which victory is evolved. ~ Sun Tzu

Records are only set if customers are paying for such a configuration. Polarcus set the current record of 10 streamers at 200 meter separation for the largest spread. Using three sources instead of two used for the standard “flip-flop” source acquisition, sub-line data acquisition improved 50%. As for broadband acquisition, the industry answered to the dual sensor broadband with depth-varying hydrophone techniques to eliminate the receiver “ghost” caused when the down-going signal reflected from the air-water interface cancels the up-going signal. The “ghost-notch” is related to the tow depth of a hydrophone only streamer. Better streamer control technology made this possible. In the current climate, operators seem to want to meet their acquisition commitments, but also reduce costs and will look at new acquisition and data processing solutions.

It is important to note that Dolphin could not secure enough work with those vessels in the relatively short time they operated them to turn a corner in profit or efficiency. Polarcus also had impairments as a result of significant financial restructuring. However, their fleet has mostly remained stable enough to find meaning in utilization numbers. No player in the marine seismic streamer sector performed exceptionally well from a shareholder perspective. This is also the case for most O&G companies. When the unexpected happens it can hide bad strategy or simply make good strategy bad for the crisis situation. Also, there is no getting around the fact that expensive new builds will have more difficulty making high margins in a low spending market. What in fact is the value of a $285 million USD vessel purchased when oil traded at over $100 / bbl at this point in time? Who knows? Polarcus stated that they are much stronger since restructuring and have booked work for six months into 2016. Polarcus reiterated significant cost pressures and low tender activity for 2016 at the ABG Sundal Collier Oil Service Conference (10 March 2016).

Finally, for those who have been kind enough to read my articles published through LinkedIn Pulse™, you are likely aware that I am a USA citizen who worked in England. My writing began as an effort to regain my identity from my former employer deliberately undermined me, bullied and defamed me. When I complained, the prescribed process which I was entitled to under employment contract to address these issues was obstructed. For whatever reason, there was a collective effort to make my life miserable and end my career.

Each time that I write a critical article and identify bullies, readers and myself expect some reaction those responsible. It never happens.  When a foreigner complains about workplace bullying, the full wrath of executives befalls them. The last thing that the bullies could have expected is being called-out on their home turf. Nothing has begun because no executive has spoken. And so nothing has finished either.  You cannot separate enterprise culture from performance too long. Toxic organizations have a way of killing their targets and themselves.  They decide what is a “safe” workplace. The same people make all of these decisions. It will be difficult because the foundation and values that inform decisions are not reliable. So, chaotic results are almost expected. When a company decides to take the actor who forged documents in their conspiracy and make him a spokesperson against corruption in the corporate publication, hypocrisy and deceit are limitless. You can hardly trust anything. I don’t anyhow. However, such a climate is tragic for the marine seismic streamer market and the geophysical industry. To a very large extent the recovery of the marine seismic streamer sector is determined by decisions of executives in the principal companies. Honest professional livelihood depends on sound and ethical leadership. It is in the best interest of the industry that decision makers are ethical and sound navigators. And we should not admonish and dispense of true professionals at the expense of retaining a corrupt status quo. After all, it is the integrity and professionalism which gives the industry its credibility to crunch numbers through complex algorithms that create the images and maps that are at its foundation. All but a few want 2016 to end with the moral compass fully engaged and directing the industry forward.

There is no compromise when it comes to corruption. You have to fight it. ~ A. K. Antony

Rather fail with honor than succeed by fraud. ~ Sophocles