It might be a well-worn saying, but it fits perfectly in today’s industry environment: When the exploration business sneezes, the seismic business gets the flu.
Seismic acquisition companies have financial aches and pains this year because of a reduction in capital expenditures for oil and gas exploration work, especially by international oil companies.
That’s produced a series of worried comments from seismic company chief executive officers around the world. The CEOs say their companies are hurting for profit during the current spending slowdown.
But it’s not the first slump the seismic business has seen, and this one comes with a number of bright spots.
There’s no doubt the biggest players in international seismic acquisition are suffering. CGG in France, a leader in global seismic, reported a significant drop in operating revenues for 2014 year-to-date. That led to a squeeze on its bottom line and a pullback in operations.
“Given the current weak market conditions characterized notably by the unpredictable capex spending of our clients, delays in awarding projects and pressure on prices, we anticipate 2014 to remain difficult,” said Jean-Georges Malcor, CGG’s CEO in Paris.
“In this context, CGG has decided to accelerate and intensify its restructuring measures into 2014,” he said, “downsizing the fleet from 18 to 13 vessels by the end of the year and disposing of its North America land acquisition business.”
Dutch firm Fugro N.V. reported losses in its geoscience division and took non-cash impairments and write-offs of 346.6 million euros, about $447 million, in the first half of the year.
“We are facing a weakened oil and gas market, related to delays in large capital projects, and hence we have stepped up cost-reduction and performance-improvement initiatives at underperforming parts of our business,” said AAPG member Paul van Riel, the company’s CEO in Leidschendam, Netherlands.
North American Perspective
North American seismic firms are feeling the pain, too. Dawson Geophysical Co., an industry leader in land seismic acquisition and processing, reported a loss of about $7.5 million in its fiscal third quarter this year.
The company has “experienced a difficult environment during the previous four quarters driven primarily by unanticipated client delays, weather issues and project-readiness issues related to land access permits or agricultural activity,” said AAPG member Stephen Jumper, Dawson president, chairman and CEO in Midland, Texas.
Georg Venturatos, an analyst with Johnson Rice & Company LLC in New Orleans, said big exploration companies and other seismic customers seem “likely to remain focused on their recent capital discipline approach.”
Venturatos sees signs of a potential demand uptick in the second half of 2014 but said concerns remain, especially over project delays and the seismic order-book mix needed to avoid crew idle time.
“The ocean-bottom cable market remains a bright spot, with a significant backlog of unawarded projects within the market,” he said.
Despite the mostly gloom-and-doom talk, not everybody in the seismic business is downbeat right now.
When CGG dealt away its North America land seismic operation, Geokinetics Inc. in Houston acquired it in a deal expected to be final at the end of October.
Company officials are thrilled. Daniel Crowley, Geokinetics president and CEO, called the benefits of the acquisition “compelling.”
He said it will move Geokinetics into the No. 1 position in crews working land seismic acquisition in North America, with the company taking the top spot in Canada and second place in both the U.S. Lower 48 and Alaskan markets.
CGG gets a minority stake in Geokinetics and will continue to contribute its patented technology to support the crews, Crowley noted.
Some Signs of Hope
While the international seismic acquisition business is ailing, other parts of the seismic world are less affected by the spending downturn, especially companies with seismic data libraries, reprocessing and imaging services and specialized technologies.
TGS-NOPEC Geophysical Co. managed an increase in net revenues and a small increase in earnings for the first half of 2014. Known in the industry as TGS, the company has financial headquarters in Asker, Norway and operating offices around the world.
“Both sales from the existing data library and customer commitments for new projects were strong and our backlog remains near an all-time high level. TGS continues to be well positioned,” said company CEO and AAPG member Robert Hobbs in Houston.
In a hopeful sign for the worldwide oil and gas industry, repercussions from the capital expenditure slowdown haven’t slammed other parts of the exploration support chain.
Offshore drillers and rig contractors are getting through the industry down-cycle with decent utilization rates and work backlogs, with weakened demand affecting ultra-deepwater work where a rig surplus has developed.
The big service and supply companies continue to do well.
Halliburton Co. reported record total revenues of $8.1 billion in the second quarter of 2014 and a 23-percent jump in operating income from “significant activity improvements in North America and the Eastern Hemisphere.”
“I am very pleased with Halliburton’s second quarter results and continue to be very excited about the momentum of our business for the rest of the year and beyond,” said Dave Lesar, the company’s chairman, president and CEO in Houston.
Schlumberger appeared equally chipper, posting a healthy increase in income from continuing operations. The company saw the strongest growth internationally but also cited an upturn in its North American business, both onshore and offshore.
It might be a well-worn joke, but it fits perfectly in today’s industry environment: “How’s the elevator business going these days?”
“It’s up and down.”
The seismic business is like that, too. Right now the market is down, and looking for up.