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The Longer and Lower Wave of the Marine Seismic Streamer Market

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

What is in store in 2018 for the Marine Seismic Streamer Market?

The industry has changed drastically over the last few years. The oil companies demand competitive and flexible solutions and the providers that can offer that in the most cost efficient way will capture market share. ~ Irene Waage Basili, CEO Shearwater GeoServices

Flexible capacity is the new euphemism which has been conceived to explain the main problem in the marine seismic streamer market sector.  It translates to seismic streamer vessel over-capacity.  This was the topic of my first blog post, The Seismic Vessel Over-Capacity Problem (5-May-2015)Flexible capacity is really seismic vessels equipped to explore on short notice, but currently without solid order books to keep them in operation.  While people may be waiting for a resurgence in oil prices from its plunge in mid-2014, there will be no parallel improvement in the marine seismic streamer sector.  While oil prices may encourage exploration, such an infusion of capital for exploration will be spread out, for one thing.   When oil prices do rise again, customers will have an entirely new field of marine (and land) geophysical exploration options which did not exists when oil prices were higher.  Innovation that reduces costs will always be in fashion.  Also, the flexible and stacked capacity is almost equal to the current active operating capacity.  I believe that this vessel capacity will be absorbed into the market before any substantial price increase for marine seismic streamer services is realized.   Just as innovation and technology spurred competition in the hey-day of oil prices exceeding $100 USD /bbl, the same spirit of competition is adjusting to the current market.  Like the Iguana’s of the Galapagos adaptation to their perilous environment, the longer and lower slump in exploration has changed the marine seismic market completely and created new demands, risks, and opportunities for service providers.  It is not just about vessel capacity, but a paradigm shift in how to optimize the entire value chain from acquisition to imaging.  Only technology that delivers the needs of customers will prosper.  Some historically stalwart technology and techniques may no longer be in fashion for the current marine seismic streamer market.

Matters of the marine seismic sector have been monitored and written about since 2015 through www.MarineSeismicSurvey.com website blog articles.  I began working in the marine seismic industry in 1997 and these blogs represent my impressions of the industry.  Also, follow @MarineSeismicPM Twitter™ feeds for offshore and seismic news. The blogs have mostly concentrated on the marine seismic streamer market.  This market sector is analyzed as an indicator of the overall health of the deep water offshore oil and gas industry.  Marine geophysical data acquisition is the first step in any offshore project (concession) development.  Within these blog articles, pure play marine seismic streamer service providers, Polarcus and Dolphin Geophysical / Shearwater GeoServices have dominated the most analysis.  However, more diversified companies, such as Schlumberger’s WesternGeco (WG) and CGG also significantly impact the marine seismic streamer market.  WG and CGG had operated the largest marine seismic streamer vessel fleets prior to the mid-2014 collapse in oil prices.  The global marine seismic streamer vessel fleet has been substantially reduced from its mid-2014 levels.  Within the most recent blog article post, The End of Wide-Tow Streamer Seismic?, it was noted that one major marine seismic company has actually maintained the largest operational marine seismic streamer vessel fleets since the collapse.  When overly ambitious Dolphin Geophysical (Dolphin) was pushed into insolvency and unable to maintain their Sanco Shipping (Sanco) charters of wide tow Sanco Swift and Sanco Sword, a similarly ambitious competitor took over the Dolphin charters, as well, preparing for a marine seismic streamer market resurgence.

What seems evidently clear to most all oil and gas market observers is that past marine seismic business models simply do not apply in this new market reality.  Even those with many years of experience in the marine seismic streamer sector didn’t foresee an impending collapse or its repercussions.  At the same time, while the price of oil may be a key incentive for marine geophysical exploration, success has never been a guarantee for providers of offshore geophysical services, even when oil prices were high.  While this current downturn may have turned out to be longer and lower than many anticipated, one major player, especially, seems to have been behind the eight ball in their strategy following the collapse.   Vessels are expensive to operate and that is why vessel utilization numbers impact earnings for vessel owner/operators.  This is also why vessels are taken out of operation and stacked.  Keeping vessels equipped for operations is much more expensive than storing at a dock.   The largest marine seismic streamer fleets prior to the collapse in oil prices were operated by CGG and Schlumberger’s WesternGeco (WG).  WG introduced new build Amazon-class vessels into the fledgling market.  CGG bought the marine seismic streamer business from Fugro Geoscience in late 2012 and gained capacity that way.  WG does not publicly disclose which vessels are operating. CGG now operates five (5) streamer vessels according to the most recent Q3 2017 report.  (CGG’s website displays four (4).)   One pure-play player had ordered four (4) humongous new build vesselsThe first two were put into operation prior to the collapse in oil prices.  They did delay the delivery of their final two new-builds.  What also perplexed some was management’s decision to also assume the Sanco Shipping vessel charters of now insolvent competitor Dolphin Geophysical.  This positioned the company to have the largest operating marine seismic streamer fleet.  Apparently, company executives were planning for resurgence in demand that never arrived.   The main point is that CGG and WG had reduced their fleets significantly long before their competitors decision to reduce their operating fleet to six (6) streamer vessels was announced during their Q3 2017 financials.  For a more complete view of vessel operations, Searcher Seismic’s SeisIntel™ application does track the global seismic streamer fleet activity.

With 4 vessels in the global spot market, it is important to strategically manage the vessel schedule and the global distribution. ~ Duncan Eley, Polarcus CEO, Q3 2017 Earnings Presentation

 

Even with all the effort which has been made by the industry, there are still too many vessels for the volume of activity which is being offered. ~ Jean-Georges Malcor, CEO CGG (Q3 2017)

Prior to the seismic streamer market disintegration, Polarcus and Dolphin Geophysical (Dolphin) operated relatively small seismic streamer fleets.  Both Polarcus and Dolphin competed exclusively in the marine seismic streamer market.  Dolphin was a relative new-comer to the market and also was anticipating growth opportunities.  Dolphin especially was affected by the dramatic decline in oil prices which halted deep water exploration programs.  In a growth market of opportunities, operating small fleets was actually a commercial disadvantage in terms of servicing global demand.  It costs money to move vessels to projects in what is termed transit costs.  Currently, the operating marine seismic streamer fleets competing in this market are more in parity such that no one service provider can really offer global coverage.  However, while the global marine seismic streamer vessel fleet has been greatly reduced in number, the vessels which remain in operation to service the global marine seismic streamer market are bigger and capable of towing more streamers.  The two humongous new-builds, Sanco Sword, and the two Amazon class vessels, all with greater towing capacity, were introduced into the market up through the beginning of 2017.  So, the number of geophysical equipment instruments in the water acquiring data has actually not fallen as drastically as the number of operating vessels.  In the current market, a global fleet which has new wide-tow streamer vessels actually benefits customers economically much more than it does the vessel owners.  The real impact on the market is that the current global fleet can complete surveys faster because it is composed of larger vessels.   But, this is only part of the picture.

Marine seismic streamer vessels are the principal asset and liability of marine seismic streamer data acquisition companies.  When Dolphin went into insolvency a competitor assumed its Sanco charters.  However, Dolphin had also been chartering vessels from GC Reiber Shipping (GC).  Vessel owner GC created a geophysical seismic streamer company,  Shearwater GeoServices (SG), from Dolphin’s remnant geophysical data acquisition and processing capability and talent.   In a robust market, vessels operate to generate revenue.  However, reducing the number of vessels operating is a way to reduce losses, since idle vessels cost money.  Vessels with no crew but with equipment are the flexible capacity.  Polarcus has bare-back charter leases on two of its vessels, but in certain respects maintained its fleet pretty well in through the downturn and posted some impressive vessel utilization rates.  SG essentially is back into Dolphin’s niche, minus the Sanco vessels but operating the Polar Empress.  One fleet dominates the wide-tow category with its four humongous vessels.  However, while Polarcus and SG fleets are still not capable of towing the same number of streamers, Polarcus and Dolphin/SG have actually managed to have towed some of the largest areal streamer spreads.  Initially, Dolphin achieved this through increasing the distance between streamers.  However, Polarcus and SG now offer wide-spreads with improved cross line sampling through their Polarcus’ XArray™ and SGs FlexiSource™ acquisition techniques.  This is a significant development that seems to attract customers in a low-cost maximum coverage environment.

Those aware of geophysical seismic data processing importance in the seismic data value chain know that whenever marginal data is acquired, it becomes the job of data processing techniques to remove unwanted signal (noise) and extract as much value as possible from the data.  Vessels are considerably more expensive to operate than computer systems applying complex algorithms.  Not so long ago, marine seismic streamer companies had to negotiate expensive time-sharing arrangements between vessels acquiring seismic data proximate to each other.  The air gun source from another survey could impact the signal being used to acquire data.  This seismic interference caused problems in further data processing and imaging which form the maps used in drilling for oil.   More capable computers applying complex algorithms can now be used to separate-out such seismic interference.  More importantly, taken to the next level, similar algorithms are now being applied to remove overlapping air gun source data from subsequent survey shots.  The common convention for seismic streamer data acquisition has been to use a dual-source, flip-flop, technique for efficiency.  The flip-flop method allows continuous data acquisition by allowing air pressure to develop for the next shot; shot àrecharge àshot.  However, being able to acquire simultaneous source data reduces the data acquisition time.  It also affects the source-receiver midpoint geometry and record length.  These parameters are what define the point being imaged.  Smaller vessels can tow fewer streamers but space them wider.  So, while the wide-tow pioneer holds the record for the most equipment being towed, Polarcus holds the record for towing the largest areal spread.

I think it’s pretty evident that the shallow water is going to come back a lot quicker compared to I would say an overall ramp in deep water activity. ~ Paal Kibsgaard, Chairman and CEO Schlumberger (Q3 2017)

I’d just like to mention that the reason why the winter season is going to be still — that’s our view, still difficult for the data acquisition business, is that we are still operating in the market which is over supplied. Even with all the effort which has been made by the industry, there are still too many vessels for the volume of activity which is being offered. ~ Jean-Georges Malcor, CEO CGG (Q3 2017)

Increasing the number of sources reduces data acquisition time and also the amount of equipment to manage during a project.  Acquiring seismic data with multiple air gun sources and fewer seismic streamers changes traditional geometry requirements.  It also places more importance on post-acquisition data processing needed to clean the data and also the forward processing algorithms applied for the new geometry.  This is significant, in my view.  In 2007 a major step-changing dual-sensor streamer was introduced into the market.   This broadband streamer technology became a commercial 3D acquisition offering in 2009.  This streamer is able to acquire dual-sensor (conventional hydrophone + particle velocity sensor) data, as is done with (older) seabed seismic acquisition techniques.  (These day’s seabed seismic nodes acquire mostly 4-component data.)  By combining dual-sensor data, broadband data is acquired.  WG introduced their 4-component streamer, IsoMetrix™, in 2013.  Other companies have now also developed and introduced multi-sensor streamer technology into the market.  These are amazing technologies and several articles have been written about the imaging possibilities possible from data acquired using multiple sensors.  The same can be said for advances in sea bed seismic technologies and techniques.  But, this articles focus is on the current marine seismic streamer market where near-term costs, and not necessarily the full downstream potential realized from their data, is prioritized.  Multi-component streamers, or even streamer depth manipulation acquisition techniques using single sensor (hydrophone) streamers, are operationally more expensive and demanding than single-sensor streamer acquisition  Having a large spread of multi-sensor streamers operating optimally requires attention and maintenance in-sea.  Multi-sensor streamers need to be kept clean, and this is additional risk exposure for all stakeholders.  Without debating data quality issues, multi-source techniques with reduced streamer exposure for wide spreads is another win for customers in need of cost saving operation strategies.  However, the problem still remains that towing large areal spreads is not as beneficial for surveyors as it is for customers who do not have to worry about keeping their vessel fleets working.

So, there still remains a marine seismic streamer vessel over-capacity problem for a combination of reasons.   In the current environment, cost is the priority because there is no immediate profit-making incentive.  Marine seismic streamer vessels are expensive to operate.  So, acquiring data must be as efficient as possible.  But, what exactly does efficient mean in this current market?    Fewer opportunities mean fewer vessels are needed.  More expensive vessels are completing survey more quickly for modest profit margins.  The marine seismic business is as competitive as any and has seen providers of these services come and go throughout the years.  Before the collapse, the oil price marker for deep water field exploration and development seemed to be set within the sector for oil prices needing to be above $70 USD / bbl.  But, geophysical exploration costs are a relatively small percentage of overall deep water field development.  On the other hand, carrying out geophysical exploration is a first-phase commitment made by operators of offshore leases.  Based on these dynamics, investment in deep water assets will be minimized until any substantive spending can show a positive return.  For this reason, deep water exploration will likely be one of the last oil and gas markets to return to growth.   This places pure-play providers of deep water geophysical exploration services, such as seismic streamer, in a precarious position.  The successful business model for marine seismic streamer data acquisition and processing in the future still remains unclear.  Obviously, the number of profit bearing opportunities is more when oil prices are higher than the base development cost threshold.  On the other hand, with oil priced below the base development cost threshold, there is essentially no near-term profit making incentives for frontier exploration.

The main incentive for operators to explore is concession commitments and to possess risk-opportunity data for analysis.  There may be profit making opportunities further down the line, in terms of what development costs are relative to projections for sustained oil prices.  However, even if the threshold oil price of $70 USD / bbl moves lower, oil from deep water assets will remain among the most expensive to develop.  Oil will need to be priced above the threshold for a sustained period before there is any real growth in demand for deep water seismic streamer exploration.  Also, when cost is a priority over time, an older and less expensive vessel operating longer can be competitive.  Finally, to top it off, even if the threshold price of oil has headed down because of improved processes and technology, deep water field development will continue to be some of the most expensive.  When oil is sustained over the threshold, then the market will first absorb the flexible and stacked capacity before there is any substantial increase in vessel utilization rates.  Bear in mind, the different marine seismic streamer service providers have varied commercial commitments and structures also.  So, a profitable project for one service provider may not be a profitable project for another.  The appetite for cost-efficient and time-efficient acquisition will not be lost by customers.  The diversity in what is offered to customers in combining both novel acquisition techniques with innovative data processing and imaging solutions will provide customers with an abundance of choices.  The marine seismic streamer sector will remain soft.  Currently, there still remains too much global marine seismic streamer vessel capacity in operation.  Because of the variety of solutions available, vessel utilization will not necessarily be distributed proportionally to the different service providers.  It will be driven on the near term cost value to customers.  The marine seismic streamer market may have passed the lowest point of the trough.  However, marine seismic streamer service providers will never see the kind of activity that existed before mid-2014.  Both the problems and solutions are very different now.

There is a lot of seasonality in the vessel market. So obviously, Q1 and Q4, is usually a very good period to pick up a vessel. ~ Kristian Kuvaas Johansen, TGS-NOPEC CEO (Q3 2017)

Speculative markets have always been vulnerable to illusion. But seeing the folly in markets provides no clear advantage in forecasting outcomes, because changes in the force of the illusion are difficult to predict. ~ Robert J. Shiller