Here's good news for the geophysical sector of the oil and gas industry: This year should bring improved business conditions over 1999, especially in North America.
But there's a catch: The year 2000 looks better in comparison for seismic companies mainly because last year was so darn bad.
"It's just been dastardly," said Charles F. Darden, president of the International Association of Geophysical Contractors in Houston. "The geophysical industry has not seen the kinds of improvement that other sectors in the petroleum effort have experienced, especially during the second half of 1999."
Darden said seismic contractors hoped their on-the-shelf stores of data would protect them from the worst effects of a downturn in exploration. That didn't happen, he said, and most geophysical firms got clobbered following the 1998 decline in oil prices.
Even worse, the price rebound didn't seem to help. Darden said major E&P companies may have turned to on-the-shelf prospects for drilling, before ordering up new seismic data.
"There may be a backlog of prospects there that need to be explored before the clients begin to fully utilize the geophysical contractors' capabilities," he theorized.
Based on his conversations with others, Darden thinks "it could be into the second quarter of 2000 before we get the improvement that has to come."
While everyone expects a rebound for seismic, some analysts predict continued struggle for the industry through most of 2000. Worldwide, geophysical demand probably will remain soft, said John Spears, president of Spears and Associates Inc. in Tulsa.
The petroleum industry market-research firm issues a quarterly "Drilling and Production Outlook" and an annual "Oilfield Market Report." It estimates that the global geophysical services and equipment business was a $4.2 billion market in 1999, and Spears forecast a decline to about $3.8 billion in 2000.
Demand for seismic in Canada and the United States will improve, but he said "the rest of the world, outside North America, is going to have a much longer lead-time."
Spears sees Latin America as an exceptional bright spot in that picture, but expects doldrums for the North Sea.
In Africa, the Middle East and the Far East, geophysical demand "could move sideways on us," he said.
Better cash flow for exploration companies already has spurred drilling in Canada, where signs point to a continued recovery, according to Spears. But overseas operators "don't believe in $25 or $26 oil," he noted, "and don't want to get caught spending too much."
Geophysical contractors may have to belt-tighten most of this year, after suffering through a business decline of 30 percent or so in 1999, he said. Real improvement would then show up late in 2000.
"If oil prices stay around $20," Spears said, "and we continue to see good growth in worldwide demand, things will look a lot better in 2001."
A 'Major' Shift
Last year's slowdown put seismic firms in a squeeze, noted Dennis Jordhoy, vice president of marketing for Veritas DGC Inc. in Houston. The companies are trying to fund research and introduce service improvements in a punishing market.
"We don't see it rebounding as quickly as we'd like.
"There's still huge pressure on pricing," he continued, "and our clients don't seem to be freeing up budget money as quickly as we thought they would a couple of months ago."
Jordhoy voiced a common complaint, or at least lament, from the geophysical sector: There has been "a major shift in R&D activity from our customers to us" at the same time profit margins are shrinking.
As a result, the risk-reward equation has turned against seismic providers.
"If you look at the reduction in the cost of marine seismic acquisition in the last 10 years or so, it's come down by a huge percentage," he said. "At the same time, our risk share is increasing."
Although land-seismic activity is stronger in Canada and marine work continues in the Gulf of Mexico, the land-seismic business in the United States remains gloomy, according to Jordhoy.
Looking to the future, Darden hopes marine seismic in the Gulf will help the industry recover. Because of permitting and operational problems nearshore, he sees better prospects in federal waters.
"Right now a large percentage of our worldwide marine acquisition capability is offshore Brazil," he said, adding "it's a shame so many companies have to go that far" for work.
The outlook for land-seismic companies closely tracks the rest of the geophysical sector, according to Ray Tobias, vice president of data acquisition for Dawson Geophysical Co. in Midland, Tex.
Dawson owns no marine vessels, Tobias said. It deals in land-based seismic predominantly in Texas, New Mexico and the central United States, with some business in California.
"The general consensus at our company is that we certainly feel like 2000 will be better than last year. Our outlook is late first quarter to early second quarter, before we feel like land seismic will pick up," he said.
Tobias sees two primary factors suppressing demand for new geophysical work.
First, many exploration companies seem to be working through "prospects on the shelf," he said.
Second, all major companies entered 1999 with tight budgets.
"Most people we're aware of feel like their 2000 budgets will be better," he said. "The general attitude out there is certainly better.
"The main thing for our company is just stability in the price," he added. "If oil companies feel comfortable that oil would be even $20 per barrel and gas would be $2.50, that's the biggest thing on the land side."
Major companies are Dawson's largest customers, and merger activity has reduced the number of major firms. The shrinking number of players in the market also affects the company's seismic business.
"That's part of the scenario we see that's taking the geophysical side of the business longer to recover," Tobias said. "The workover companies, the drilling companies, a lot of those companies have come back already."
Doing It Better and Cheaper
Despite the recent revenue slump from depressed demand, geophysical companies continue to improve their services, Darden noted. He cited the development of 3-D, four-component (4-C) acquisition as well as energy-source improvements and advances in ocean-bottom cable.
"The bottom of it all is that we've found ways to do it better, cheaper -- and still have the highest quality," he said.
Jordhoy said Veritas now uses satellite technology, specifically GPS, for real-time data acquisition. With accurate position and survey information available at the same time in the office and in the field, correction time-lags shrink and one senior surveyor can monitor several seismic crews, he said.
The company is already introducing the next step -- checking progress and reviewing data in the client's office, to confirm or modify the acquisition program in real-time, according to Jordhoy.
He thinks 4-C surveys may be the wave of the future, but not the present. Multicomponent acquisition typically employs hydrophones in combination with multi-element geophones, and captures shear-wave data in addition to compressional waves.
"For multicomponent to become more widely used, we still need a technological breakthrough," he said. "... once we have multicomponent equipment that's economical to deploy, the industry has to decide it's important to have shear-wave data."
Wider use of 4-D seismic could be an "absolute windfall" for the sector, Darden believes. Not only would 4-D provide ongoing, long-term projects, he said, it would be paid for out of relatively secure production budgets.
"There's going to be a lot more money to do 4-D," he said. "But like 3-D and other techniques before that, it's coming along slower than most people would like to see it emerge."
All in all, the business and technical future appears promising for the geophysical sector. It's only the near-term that seems a bit dim, according to Darden.
"The circumstances of this downturn are certainly unlike any other downcycle we've had in the past," he said. "But our industry has the resiliency and the technical competency to bounce back and become profitable. The only question is when."
For geophysical contractors hoping for a seismic rebound, Darden added, "It can't come a moment too soon."