If there was such a thing as an annual horoscope for the marine seismic and related geophysical businesses, then in the coming year we can expect at least some improvement on 2012. In other words, unless there is some totally unexpected destabilizing economic, political or other influence which confounds even the best astrologer, we can probably say that the marine seismic community will see a steady flow of orders, tightening of vessel availability and firmer prices.
The precondition of any optimistic scenario is the prospect of significant E&P spending, and in that department the stars appear to be aligned. The widely quoted Barclays Global 2013 E&P Energy Spending Outlook certainly seems to think so. It suggests that global exploration and production spending is set to reach a new record of $644 billion in 2013, up 7% from $604 billion last year. Markets outside North America are the main driver, forecast to reach an unprecedented $460 billion, a 9% increase on the 2012 expenditure.
Sustained high oil prices, the sanctioning of major projects and the delivery of a large number of offshore rigs in 2012/13 are cited as key factors with the increase spread to almost every country with hydrocarbons to exploit. The exception is North America which has been impacted by the over-enthusiastic production of shale gas and the resultant decline in gas prices.
For the marine seismic business major increases in capital expenditure do not necessarily translate into good news. It can just mean that oil company dollars are primarily focused on development projects rather than exploration, which is frustrating. However, Barclays brings some cheer on this front. It reports that the supermajors are basically back in the game after a period of relative abstinence – their 2013 spending is expected to increase globally by 9%, led by active drilling and exploration programs from Chevron (up 17%) and ConocoPhillips, Shell, Total and Exxon (all up by more than 5%).
Barclays attributes these high spending levels by the supermajors to years of flat spending and under-investment in the early to mid-2000s, resource nationalization resulting in the expansion of deepwater drilling activity (particularly in Brazil and West Africa), and the need to find and replace large pockets of reserves and increase production. Active exploratory programs in emerging offshore markets in West and East Africa and the continued ramp up in activity levels in frontier markets including Iraq, Colombia and Southeast Asia are said to be contributing to the year-on-year growth.
It’s the small print from the review which makes the best reading for geophysical services companies. The outlook for the economics of exploration mostly improves for 2013 versus 2012. International exploration economics continue to be viewed best among the regions in the Barclays survey, with 75% of companies believing that the economics for 2013 would be ‘excellent’ or ‘good’, up from 68% in the last survey. The outlook in the US also improved, and the percentage of companies which responded ‘excellent’ or ‘good’ moved up to 84% from 57%, while Canada did not fare so well with regard to its exploration prospects.
What seismic companies really want to hear is that E&P companies are expecting service prices to increase in 2013 with nearly a third of respondents indicating they anticipate higher prices across all product lines compared to only 10% of companies who expected higher pricing last year. Elevated levels of utilization will drive prices higher internationally across the full array of service and equipment product lines, Barclays believes.
The icing on the cake is the favorability rating of geophysical applications in E&P. It is not a surprise that for the fifth consecutive year, fracturing, stimulation and horizontal drilling were most commonly cited among operators as having the greatest impact on their spending plans. However 3D/4D seismic was also highly influential, placing third, reflecting the focus on exploring new, unconventional plays.
Period of stability
2013 could, in fact, be a period of comparative stability for marine seismic contractors, with the market close to equilibrium in terms of survey demand and availability of vessels. This is probably something to celebrate from the contractors’ point of view because whenever there is an upturn, it’s never long before investors, notably Norwegian shipping interests, decide to make a play. Already there is talk of Rieber Shipping and Sanco both contemplating the construction of new vessels. This may not be entirely a bad idea if the introduction of modern, 3D vessels prompts the retirement of less efficient vintage.
No one would be at all surprised if Dolphin Geophysical, which has only been in business for a couple of years, emerges as a potential buyer for any newbuilds on offer. It came up with the money to charter the last two vessels which Sanco began to construct without a named buyer – Sanco Swift due out this year and Sanco Sword due out in 2014. The intention is to enable the company to move more seriously into the high-end, 3D seismic market. The same rationale could see Dolphin purchase more new capacity if the financing can be found.
CGGVeritas estimates that it will be 2015 before there is any significant increase in the global vessel count – 75 vessels compared with 60-odd right now. It will be interesting to see whether Dragon Geophysical is part of the mix by then. This looks to be a classic, speculative venture launched during an upturn in the fortunes of the industry. In this case, the prime mover is David Lamb, who was, until mid-2011, CEO of Reflect Geophysical, a subsidiary of Singapore-based shipping company Otto Marine.
The plan is a variation of many similar start-ups. Dragon Geophysical is actually part of three distinct business units in Dragon Energy Holdings. Dragon Offshore will be responsible for the construction operations and systems integration of four, ultra-modern, 16 streamer seismic vessels. Dragon Maritime will provide worldwide maritime operations for the vessels; and Dragon Geophysical will provide seismic acquisition survey services including non-exclusive surveys and data processing services. The intention is to expand the non-exclusive business to generate cash-flow for the company while the vessels are under construction. The exclusive data acquisition service will commence on the delivery of the first two vessels, of which there is no sign of an order yet. The management team is all said to have over 20 years’ experience in the sector. Lamb himself was at one time involved in Multiwave Geophysical, an earlier Norwegian investor-backed marine seismic company which also ended up being bought by CGGVeritas.
The Dragon Geophysical start-up moves, whether fruitful or not, merely serve to underline that the business climate is favorable for marine seismic and therefore propitious for investment. One of the few start-ups which seems to have crossed over to the mainstream, the Dubai-based company Polarcus, may soon start making noises about building more vessels. If the company can afford it, this seems to make sense. Its original game plan was to go big from the start and launch, as quickly as possible, a fleet of eight vessels, so that it would have the capacity to compete across the globe.
The Polarcus fleet is actually down to six available vessels under its management. The two smallest newbuilds in the fleet, which are only capable of towing six to eight streamers, have been off-loaded. In 2011, the Russian company Sovcomflot took the Ulstein SX133 X-Bow design Polarcus Selma on a five-year bareboat charter, renaming the vessel Vyacheslav Tikhonov after a well-known Russian actor. More notoriously, Vladimir Putin, at the time Prime Minister of the Russian Federation, accepted the role of guardian of the vessel at a naming ceremony in the Russian Black Sea city of Sochi.
Late last month, Polarcus was in the final throes of negotiating with the Turkish Petroleum Corporation (TPAO) for the sale and reflagging of the Polarcus Samur, augmented with the provision by Polarcus of seismic data acquisition, management and crewing services for the vessel. TPAO plans to use the 3D vessel to conduct extensive seismic exploration of the offshore continental shelf off Turkey in both the Black and Mediterranean Seas.
For Polarcus, the two transactions are revenue-earning opportunities to unload the two least-profitable vessels in its fleet, leaving it with a set of larger, more productive vessels to meet the demand for 3D seismic surveys many of which are quite substantial in size these days. Additions to the family may therefore be in the cards in the not-too-distant future, financing probably being the main hurdle. Any new vessels would probably be based on the distinctive Ulstein design which is also a feature of some CGGVeritas and WesternGeco vessels. The forthcoming WesternGeco vessels from a German shipyard, however, will be unusually designed specifically for seismic rather than adapted from a more multi-purpose platform.
Out in the market for survey vessels, it has been clear for some time that companies must be able to offer some form of broadband seismic capability for improved imaging of complex subsurface geology. The big three – WesternGeco, CGGVeritas and Petroleum Geo-Services (PGS) – have been putting it about for some time that their proprietary marine data acquisition systems for broadband seismic differentiate them from the competitors and can command premium prices. WesternGeco believes that its IsoMetrix system, launched with much fanfare last June, offers a further step-change in 3D seismic acquisition, so better than all the rest. Yet, with all companies reporting good backlogs, the evidence would suggest that the market is not that differentiated – which is what you would expect. Historically, big technological leads have not lasted very long, and both Polarcus and Dolphin, who make up the numbers in the big five, claim to be at least broadband capable.
Similarly, in the field of marine controlled-source electromagnetic (CSEM), the technology monopoly established by Electromagnetic Geoservices (EMGS) could, this year, be in jeopardy as a result of some pressure from PGS. This is if the towed streamer EM survey technique pioneered by PGS lives up to its promise. At the end of last year the company was reporting that multi-client and exclusive data surveys acquired in 2012 over seven known fields/prospects with a variety of geological settings were successfully concluded, and that inverted EM data was acquired in November over the Norwegian offshore fields of Bentley, Bressay, and Kraken. PGS has been sufficiently encouraged to be planning a minimum of three months EM acquisition for the North Sea and Barents Sea this year.
The 2012 operations took place in water depths of 100-350m, surveying target depths at 1300-2200m, with production figures said to be in excess of 110 vessel-km/day. Minimal downtime and acquisition in variable sea-states were other highlights. All these performance statistics are part of PGS’ insistence that its towed streamer EM solution amounts to a technology leapfrog over the existing CSEM method used by EMGS, based on placing retrievable recorders on the seabed. If the data quality is as good as PGS claims then the increased rate of productivity alone would be attractive. But of course it is much more than that. PGS can offer a combined seismic and EM towed streamer package with simultaneous acquisition of data. This is definitely one to watch as it could be the start of a significant revenue stream for PGS with no obvious competition in sight.
Technology stargazers will be focusing some attention on the trends in ocean-bottom seismic surveys. In 2012 there was certainly a growing interest in the use of nodes, although not to the exclusion of seabed cable. Responsibility for a lot of ocean-floor seismic technology operations and future R&D, including permanent reservoir monitoring systems, now resides with the new seabed joint venture between Fugro (60%) and CGGVeritas (40%). How this evolves in 2013 may well provide a clue to the bigger question of how CGGVeritas will adapt to life after its EUR 1.2 billion acquisition of Fugro’s Geoscience division. That is not easy to predict.
Indeed, all forecasts are fraught with peril. For example, should we allow for an overdue Mayan Doomesday, not to mention the Chinese Year of the Snake? Only time will tell. OE