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

A Look into the Future of the Marine Seismic 3D Streamer Market

Markets change, tastes change, so the companies and the individuals who choose to compete in those markets must change. ~ An Wang

Growth is never by mere chance; it is the result of forces working together. ~ James Cash Penney 

There is an outwardly projected optimism in the upstream geophysical exploration industry. It is displayed by geophysical exploration companies with events like the 78th EAGE Conference & Exhibition 2016 that was just held in Vienna, Austria from 30-May to 2-Jun 2016. However, the geophysical exploration industry has been sobering to the reality of a prolonged downturn in offshore oil and gas concession operator spending. Oil prices recently rose above the $50 USD/bbl mark. But, invigorating the industry to pre-2014 levels where oil prices stayed comfortably around $100 USD/bbl, will not happen for some time. Deepwater exploration is built around sustained prices over $70 USD/bbl. The problem is that the 3D marine seismic streamer sector has had over-capacity – too many vessels to complete the required demand for surveys at comfortable margins – for some time. This reality has created a very competitive sector with reduced margins and losses. For many upstream focused enterprises at geophysical exploration marketing venues there will be speculation and tales about who has been vanquished and who has remained since the last annual meeting. The reductions in most company’s personnel and market capitalization will make it difficult for those attending to count on meeting with former colleagues and business partners. There are thousands of justifications to be made as to why this year is a good time to engage in geophysical exploration where vessels are available at cost. However, axing profit margins along with staff is the product of reduced opportunities more than anything else. New strategies must be developed for this new type of dip in the historically cyclic geophysical exploration sector.

The last European Association of Geoscientists and Engineers (EAGE) Conference & Exhibition that I attended was the 2013 event in London. Most of the day that I attended was spent at the front of the company booth (of my former employer). However, I am always very interested in the talks, presentations, and booths of market players. In the 2013 market sector environment, attendees and professionals saw a lot innovation and growth built around different broadband data acquisition and data processing techniques. Product differentiation built around proprietary approaches was promoted to entice new customers. A little over a year ago, I began writing on LinkedIn™ (LI). My first posted article on LI was, The Seismic Vessel Over-Capacity Problem (First post, 5-May-2015)My follow-up to that article was Upstream Exploration and the Paradox of Choice (10-May-2015),  More recently, I posted Multi-Proprietary Marine Seismic (7-December-2015). These posts, one may note, were all written following the major decline in oil prices.  These boom and bust oil and gas industry cycles have defined the geophysical exploration industry for years.  However, this cycle is different, particularly for the marine seismic streamer sector.

In the past several months the sector has seen a significant decline in the number of operating 3D seismic streamer vessels to adjust to the reduced demand for marine seismic services. This has begged the question, what kind of demand will their be from offshore concession/block operators?  What is most valued in this market?   Some views on this were shared within the posted articles.

To touch on some of the observation made in the previous posts:

  • There were too many 3D marine seismic vessels in the market which were already forcing low price margins prior to the mid-2014 decline in oil prices
  • Operator tendering processes are prefaced on comparative technologies which make introducing new commercial technology difficult.
  • Broadband seismic has become the new standard offering. However, the data acquisition and processing techniques used can be very different for different contractors.
  • Contractor service company proprietary technology differentiation based on their own broadband techniques has contributed to the expansion of the multi-client space.
  • Cooperation between operator data acquisition and processing requirements could reduce overall acquisition and processing costs for each operator and data ownership could be retained.
  • In an over-capacity and low demand market, the speed of acquisition – vessel streamer tow capacity – does not command the same premium or benefit. Vessel utilization is the key commercial indices to track for service companies.
  • Seismic data processing technology can separate overlapping source shot interference data leading to new acquisition techniques allowing more sources to be towed with wider streamer separations towing fewer streamers with reduced loss of coverage.

The significant decline in the 3D marine seismic streamer fleet since the mid-2014 decline in oil prices has upended the sector, to be certain. Since the decline, the 3D marine seismic streamer fleet has been very volatile.  There have been fleet adjustments throughout the financial quarters.

CGG reduced its fleet and capacity from 23 to 5 vessels. Schlumberger’s WesternGeco (WG) has also reduced their fleet and adjusted their marine seismic business plan. WG, as a part of Schlumberger, is not pressured solely by the decline in demand for marine seismic services, but has exposure in many parts of the value chain. Nevertheless, the over-capacity issue has impacted WG. Both WG and CGG have moved towards a revised fleet and services strategy with less emphasis on marine seismic services. Dolphin Energy ASA (Dolphin) is in bankruptcy. However, GC Reiber ASA, owner of the vessels once operated by Dolphin Geophysical subsequently acquired Dolphin Geophysical as a subsidiary, which places the GC Reiber purpose built seismic vessels back onto the market. The Polarcus fleet has been stable for a few quarters. However, they also purchased equipment from bankrupt Dolphin. The current – 2016 – 3D marine seismic streamer now looks something like this:

The belief – hope – among marine exploration companies is that the reduction in the global 3D seismic streamer fleet will now come into balance with a demand for marine seismic streamer 3D surveys.  The reduced number of operational 3D seismic vessels will be aligned with the reduced number of acquisition projects. There has been some indication that margins are improving.  However, the latest global fleet adjustments were only finalized end of Q1 2016.  Reported vessel utilization rates still indicate operational 3D seismic vessel over-capacity for the current demand.  Some acquisition projects were planned before the decline and were not terminated.  This meant projects planned for Q3 and Q4 2014 continued.  The full breadth and longevity of the steep decline were not fully realized until the quarters which followed.  Operators also had commitments for exploration attached to their license agreements which created some opportunities.  Unbound exploration was put on hold by most operators.  In the current market, projects are not even getting off the drawing board.  Operator drilling rig contracts are now being paid-off early.  Abandoning drilling programs at the cost of the rig is preferable to sinking the additional capital into projects with no future of being profitable in the low price environment.  Cutting losses as opposed to making profit is the current survival climate.  Operator geophysical exploration projects most often precede rig contracts.

Deep water drilling rig contracts are more costly than marine exploration vessel contracts.  However, both are often considered on a daily-rate cost base.  The trend in 3D marine seismic streamer vessels was toward wide-tow capability.  Purpose-built vessels capable of towing more streamers were designed to complete surveys in less time.  So, for instance, a vessel towing 12-streamers could be competitive with an operational cost base 20% higher than a vessel capable of towing only 10-streamers.  A vessel capable of towing 14-streamers could be competitive with an operational cost base 40% higher than a 10-streamer vessel.  Completing surveys faster can also reduce equipment exposure and technical down-time as well as standby time due to weather, marine fauna, cetaceans, vessel traffic, or even other marine geophysical operations, to name a few.  On the other hand, turning-time is longer with a larger spread.  The shape and areal size of the survey, geographical location, and prevailing currents can impact vessel spread performance as well.  As the global fleet tow-capacity increased, the advantage of towing additional streamers decreases.  For example, a vessel towing 14-streamers could be competitive with an operational cost base 16.7% higher than a vessel capable of towing 12-streamers.  Of course, cost base is directly related to the cost to the vessel owner/operator.  Newer special built vessels cost more and likely have a higher cost base to the vessel owner or operator who charters the vessel. This has had many upstream companies involved in debt restructuring, cooperation agreements and creative investment schemes to weather the new market dynamics.

Completing projects faster in an over-capacity market is not really advantageous for vessel owners/operators.  Owners/operators need to keep vessels with paid work as many days as possible.  Each day without a paying customer is a negative to the effective profit margin.  With less projects this is more difficult.  Steaming from one job to the next or maintenance port calls eat away at profitability as well.  Companies with larger fleets, especially with uniform equipment and similar vessel (capability), have always had the advantage of strategic vessel placement to cover global projects and minimize steaming.  Smaller fleet size will likely increase steaming costs.  But, a strategically located operational vessel with no work is even more costly than steaming.  This is why so many vessels have been stacked – taken out of operation – during the past couple of years.  Purchasers of marine seismic acquisition services – block operators – are faced with their own economic pressures which have forced marine seismic survey companies to innovate less expensive products and services.  As discussed, vessel streamer towing capability has been the most obvious way to approach the problem of efficiency and reduce the days (charged at day rates) a survey takes to complete.  However, improved data processing capability has combined with innovative geometries.  The development of dual-sensor (hydrophone – particle velocity) streamers ushered in a demand for broadband data.  However, competitors created single-sensor (hydrophone) only solutions which varied the depth of receivers and also filled-in the ghost-notch created when upcoming signal interferes with down-going signal, effectively cancelling out a portion of the bandwidth acquired.  The ghost is depth dependent and varying the depth effectively broadens the bandwidth of the effective acquired data.   But, depth also effects different frequencies for hydrophones and particle velocity sensors.  So, combining the signals effectively also broadens the bandwidth of acquired data.  Improvements in the equipment and processing of the data made this possible.

There are two possible outcomes: if the result confirms the hypothesis, then you’ve made a measurement. If the result is contrary to the hypothesis, then you’ve made a discovery. ~ Enrico Fermi

Without change there is no innovation, creativity, or incentive for improvement. Those who initiate change will have a better opportunity to manage the change that is inevitable. ~ William Pollard

Seismic data acquisition can be compared to mowing a lawn, in simple terms anyhow.  The width of the blade will define how many passes are required to complete a survey.  A rectangular lawn is easier to mow than an odd-shaped one, which also applies to marine seismic streamer acquisition.  However, what is lost in the comparison is that the data is being acquired differently.  What is actually being measured is the signal from a point within an area, or bin, which it is called in the business.  The bin size is determined from the spacing of the receivers along each streamer cable and the spacing between each streamer.  The point within the bin is determined by the mid-point distance between a receiver and the source.  If one source is used, then a line of points is created for each streamer.  If two sources are used, then two lines are created for each streamer, alternating between each source (called flip-flop).  Now, three sources (Polarcus) are being used which effectively creates three lines for each streamer.  In times past, the limiting factor has been the timing of source shots – arrays of synchronized firings of air guns.  There had to be a space in time between shots to prevent the signal from one shot from interfering with the previous shot.  However, technology and data processing techniques can now separate the shots to allow more shots and less time.  This has effectively changed the vessel towing capacity advantage of larger vessels.  Towing wide with fewer streamers spaced farther apart while using more sources has introduced a time-saving alternative acquisition method to compete with larger wide tow vessel acquisition.  It is the combination of new acquisition and data processing capabilities that can address overlapping sources and interpolate data have come together to provide operators with cost-effective solutions.

However, service providers must introduce innovation as product and service differentiation somewhat cautiously.  This is an issue that operators and national oil companies (NOC) especially need to review.  Innovation is needed to improve productivity and costs, especially now.  Every operator and NOC wants to save on costs.  But, the competitive bidding process is designed for directly comparable products and services.  It is crucial in developing markets, especially, to have an above board bidding and contracting process.  High dollar O&G and construction projects are just too susceptible to corrupt practices without strong controls and compliance programs in place.  This starts at the bidding stage.  Not so long ago broadband data was a special alternative offering outside the main tender project scope and specifications.  It was only after seismic broadband data solutions were developed by multiple companies that broadband could be requested in a competitive tender process.  Even though venders techniques for seismic broadband data differ significantly, in the competitive bidding process multiple companies must be able to offer a solution.

The next disruption, I believe, will be simultaneous acquisition 3D seismic streamer data and electromagnetic (EM) data.  Just as the dual-sensor streamer which ushered the commodification of seismic broadband data, towed EM technology has been introduced.  A patent dispute with Electromagnetic Geo-Services (EMGS) which will allow EMGS to provide towed EM services has also been settled.  Conceivably, EMGS could team with GC Reiber/Dolphin (hypothetical) and offer both EM and seismic streamer data.  It is paradoxical, but to expand into a market driven by competitive bidding for products and services, having a monopoly on technology and capability encumbers development opportunities.  Vessels are the expensive part of marine geophysical surveys.  Being able to provide operators with more data – seismic, EM, and gravity – in one pass could be very desirable from a cost position.  But, this will require operators to not only see the potential, but also prepare a commercial environment where such disruption is allowed.  In the future of marine geophysical exploration multiple geophysical data sets will be combined and processed to constrain and better resolve parameters and previously unknown properties to image the subsurface more effectively and efficiently.  However, to realize this potential requires resilience and investment by operators who can see opportunity and profit in continuing to develop deep water reserves.  When marine seismic 3D streamer rises from this current trough it will become marine 3D geophysical data.  It is a future that innovation and technology will build together, but with fewer vessels.

We must keep on trying to solve problems, one by one, stage by stage, if not on the basis of confidence and cooperation, at least on that of mutual toleration and self-interest. ~ Lester B. Pearson

We have all kinds of limitations as human beings. I mean we can’t see the whole electromagnetic spectrum; we can’t see the very small; we can’t see the very far. So we compensate for these short comings with technological scaffoldings. The microscope allows us to extend our vision into the micro-sphere. ~ Jason Silva