Being Nimble in a Fluid Industry

What Is a Major Virtue of Seismic Contractors?

If there's one thing seismic contractors understand it's change. Technology, terms of contracts, markets, customers, even the companies themselves - nothing about this business stays static for long.

So they know about earth-shaking activity; talk to them about change, and you're on solid ground.

Here's what they say: Today, while nobody is prepared to proclaim that the most recent severe downturn is over for seismic contractors, companies are beginning to see a light at the end of the tunnel.

That means they're also trying to predict what their roles will be in the next new world of oil.

Not surprisingly, industry spokesmen see shifts in their business that will open new markets for 3-D seismic data.

"We are moving into what I call the 'solutions period' of our business in which we will be providing information for the reservoir and production side of the business," said Steve Ludlow, vice chairman of Veritas DGC and president of the International Association of Geophysical Contractors.

"We as an industry have to highlight and prove the value of 3-D seismic data beyond the exploration phase and make that attractive to our customers.

"Today most reservoir studies are based on geology and petrophysical data," Ludlow continued. "We believe seismic can enhance and spread information further over a reservoir. In most cases reservoirs are much more heterogeneous and complex than initial models indicate, and we think we can work in a collaborative environment with clients to more clearly delineate that heterogeneity."

Historically, seismic data gets left behind and engineering takes over at some point in reservoir and field development.

"(But) if we can produce seismic images with superior resolution, it becomes quite valuable in the production phase and can help define the best way to produce a reservoir," he said.

Gary Jones, president of WesternGeco, agreed.

"Without question reservoir applications are where the new growth in our industry will be," Jones said.

"Deep-water potential has been pushing exploration in the Gulf of Mexico and other places around the world for well over 10 years, and now that some discoveries have been made companies are looking at appraisal and development plans. They are recognizing the value of 3-D seismic in that stage because they need to get it right on these projects where they are investing billions of dollars."

Jones said he was "seeing more commercialization of time-lapse 3-D seismic" on the Gulf of Mexico shelf and the North Sea, which are mature provinces.

"This technique provides fluid monitoring information that can maximize and extend reserves through additions and revisions rather than through new exploration," he said, "as well as increase the recovery factor."

Big Things in Smaller Packages

Offshore seismic operations has kept the geophysical industry afloat during good times and bad. Indeed, the seismic industry has gone through good times and bad times during the past decade, and while no one in the industry is too eager to declare the most recent downturn ended, officials agree that a light can be seen at the end of the tunnel. Their question now is: What's next?

Over the past decade, a tremendous amount of 3-D seismic data was shot, and oil companies spent a great deal of money on 3-D seismic. That effort was primarily aimed at widespread, relatively coarse, exploration coverage.

"The ballgame in the 1990s was speed, wider tows on the cables in the offshore, and getting costs down to cover large areas so people could look at regional sets of seismic data," WesternGeco's Jones said. "The industry recognized that basin-wide coverage did provide a tremendous amount of value."

Image Caption

Photo courtesy of WesternGeco

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If there's one thing seismic contractors understand it's change. Technology, terms of contracts, markets, customers, even the companies themselves - nothing about this business stays static for long.

So they know about earth-shaking activity; talk to them about change, and you're on solid ground.

Here's what they say: Today, while nobody is prepared to proclaim that the most recent severe downturn is over for seismic contractors, companies are beginning to see a light at the end of the tunnel.

That means they're also trying to predict what their roles will be in the next new world of oil.

Not surprisingly, industry spokesmen see shifts in their business that will open new markets for 3-D seismic data.

"We are moving into what I call the 'solutions period' of our business in which we will be providing information for the reservoir and production side of the business," said Steve Ludlow, vice chairman of Veritas DGC and president of the International Association of Geophysical Contractors.

"We as an industry have to highlight and prove the value of 3-D seismic data beyond the exploration phase and make that attractive to our customers.

"Today most reservoir studies are based on geology and petrophysical data," Ludlow continued. "We believe seismic can enhance and spread information further over a reservoir. In most cases reservoirs are much more heterogeneous and complex than initial models indicate, and we think we can work in a collaborative environment with clients to more clearly delineate that heterogeneity."

Historically, seismic data gets left behind and engineering takes over at some point in reservoir and field development.

"(But) if we can produce seismic images with superior resolution, it becomes quite valuable in the production phase and can help define the best way to produce a reservoir," he said.

Gary Jones, president of WesternGeco, agreed.

"Without question reservoir applications are where the new growth in our industry will be," Jones said.

"Deep-water potential has been pushing exploration in the Gulf of Mexico and other places around the world for well over 10 years, and now that some discoveries have been made companies are looking at appraisal and development plans. They are recognizing the value of 3-D seismic in that stage because they need to get it right on these projects where they are investing billions of dollars."

Jones said he was "seeing more commercialization of time-lapse 3-D seismic" on the Gulf of Mexico shelf and the North Sea, which are mature provinces.

"This technique provides fluid monitoring information that can maximize and extend reserves through additions and revisions rather than through new exploration," he said, "as well as increase the recovery factor."

Big Things in Smaller Packages

Offshore seismic operations has kept the geophysical industry afloat during good times and bad. Indeed, the seismic industry has gone through good times and bad times during the past decade, and while no one in the industry is too eager to declare the most recent downturn ended, officials agree that a light can be seen at the end of the tunnel. Their question now is: What's next?

Over the past decade, a tremendous amount of 3-D seismic data was shot, and oil companies spent a great deal of money on 3-D seismic. That effort was primarily aimed at widespread, relatively coarse, exploration coverage.

"The ballgame in the 1990s was speed, wider tows on the cables in the offshore, and getting costs down to cover large areas so people could look at regional sets of seismic data," WesternGeco's Jones said. "The industry recognized that basin-wide coverage did provide a tremendous amount of value."

Today, however, Jones said a number of customers have indicated that in their view the next phase will be to shoot smaller segments with much higher resolution on a proprietary basis.

"We've been talking for years about moving geophysics into reservoir development, and I think we are finally at that stage," he said. "New technologies in the seismic industry will be geared toward providing the finer, more precise measurements and processing necessary for this new market.

"I suspect customers will discover that these small, patch proprietary surveys for reservoir characterization will be inadequate - that's just how exploration 3-D seismic coverage started," Jones continued. "But small patch surveys begin to overlap and migration aperture overlaps, diluting the value of the data.

"I'm not uncertain we won't as an industry re-shoot the Gulf of Mexico, for example, with very high-resolution technology to provide broad coverage for reservoir management."

Jones also sees seismic's move into reservoir characterization as an outgrowth of the "asset management team" approach within oil companies. Asset teams include geophysicists, geologists and production and reservoir engineers, and each is learning enough about the other disciplines to recognize the value each brings to a project's overall success.

Processing Priorities

Advances in processing will be critical as seismic moves into production applications.

"Processing is increasingly becoming the area where a contractor can make a difference," said Bert Chenin, vice president of marketing for CGG Americas.

"Seismic data has become more and more of a commodity product with few differences in acquisition," Chenin said.

"I am convinced that within a few years we will use geophysics to manage reservoirs. That's the area in which much of the research and development efforts and funds are focused," he added, "developing new techniques to improve the transformation of seismic data into knowledge."

Chenin also believes the shifting focus toward reservoir characterization also means longer-term relationships between contractors and oil companies.

"The exploration period is by nature extremely important, but very short," he said. "Producing and managing reserves is a long-term proposition, so we will have to find new ways to relate to our customers."

Ludlow said Veritas has made the commitment to processing advances as well.

"We recently acquired RC2, a software company that's developed a reservoir interpretation program, which demonstrates our commitment to the reservoir business and our fundamental belief that's the new direction for seismic contractors," Ludlow said. "We've gone from a company with virtually zero internal knowledge on reservoirs three to four years ago to (now) having nearly 500 man-years of reservoir knowledge across a very broad spectrum of the disciplines that encompasses."

He acknowledged that production engineers are not yet great believers in the benefits of seismic to their business.

"They've done it the same way for many years and been very successful, so we still have a great deal of internal marketing to do at oil companies before this concept is embraced," he said. "We will have to demonstrate the value of seismic to reservoir characterization."

Average production from a reservoir is in the neighborhood of 35 to 40 percent of reserves, Ludlow said, (so) "if we can demonstrate to customers that through better reservoir modeling with seismic data that figure can increase to 60 to 70 percent, that's huge."

Finally, the growing importance of natural gas to the energy mix around the world also will be good for the seismic industry, according to Jones.

"Nobody disagrees that natural gas is the fuel of choice for the future," he said. "Projections indicate that demand for gas could far outstrip oil demand, by as much as 60 percent or more."

He believes the seismic industry has a "unique ability to detect natural gas due to velocity changes induced in sediments when they are filled with gas.

"We can make direct detection of natural gas, making 3-D seismic data absolutely vital to gas plays," he said. "We can service the industry and society by helping to map and develop natural gas resources society needs."

Strategy Sessions

How are companies approaching the brave new world of seismic contracting? There seems to be a different formula for every firm.

♦  "We are a specialty shop," said Lynn Chenault with Grant Geophysical. "We specialize in land and transition-zone seismic. We are a worldwide company, but we are able to move around quickly in the geographical regimes in which we choose to operate."

Historically, Grant does "everything from large multi-client international jobs to one-week shoots onshore the U.S.," and has positioned itself to be "agile and quick" to take advantage of onshore projects other contractors have turned away from.

Grant prides itself on being open to a variety of approaches to the contractor-client relationship, and has become partners with selected customers on specific projects.

"You have to be flexible and creative," Chenault said. "Many independent companies don't have the deep pockets of major oil companies, and we have to find ways to make projects work. As the marketplace has changed we've had to change as well. We are doing things today we never thought of before."

He said the seismic industry has become a bi-modal business, bifurcating into a group of big oil companies and big seismic providers and a second tier of independent oil producers and smaller, more specialized seismic contractors.

He expects that division to continue.

♦  CGG Americas, among the world's oldest geophysical companies, derives revenues from every market within the geophysical industry. For example, CGG's subsidiary Sercel is the industry's largest geophysical equipment manufacturer.

"We think being a force in every spectrum of geophysical activity is unique and allows us to position ourselves for the future," Chenin said, adding that their expertise in geophysical hardware and software, and data acquisition and processing "will allow us to develop the 'intelligent' reservoir management technology that the market needs.

"You do have to react to the marketplace," he continued. "Twenty years ago we were very active in the U.S. onshore market, where we had up to 30 land crews operating simultaneously," he said. "However, in the last 10 years we recognized that the onshore market was becoming extremely competitive and profits were slim, so we decided to exit that business."

The company is now focusing on marine acquisition in the Gulf of Mexico, with its primary focus being North America.

♦  Ludlow said Veritas doesn't try to be all things to all people. Instead, the firm looks for regions where it can be the first or second biggest player and develop a high level of expertise in those areas.

"We are one of the top companies onshore Canada, in the Gulf of Mexico and in parts of South America where only one or two seismic companies are active," Ludlow said. "We also dominate the South East Asia 2-D market.

Ludlow believes contractors need to have a solid idea of which markets they want to serve.

"For example, people ask why we aren't in the ocean bottom cable business," he said. "I think that market is already over supplied, and it would cost us in the range of a large eight to 10 streamer 3-D vessel to get an OBC crew up and running.

"That market is so competitive all we would be doing is moving the crew around at our expense and working for zero margin," he added. "There's enough supply out there already."

♦  WesternGeco, of course, is a unique situation. Since the merger of Western Geophysical and Geco-Prakla, the new firm has "a role as the industry leader," Jones said.

"We need to set the tone for the business and assume the leadership mantle in areas such as safety and environmental issues," he said. "We are challenged to meet society's conflicting demands of more energy and less of a footprint on the environment."

He believes that "what sets our company apart is that we are present geographically everywhere, and we are present technologically in just about every niche in the industry.

"That's really a first," he continued. "Historically this has been a business of local niche and technology players. It's been exciting meshing the two companies.

"However, we understand that being large doesn't mean much," he said. "We have to earn business by delivering superior service, quality, technology, safety and environmental responsibility."

An Abundance of Riches?

Technology is definitely an area where geophysical contractors have excelled. That trend will continue, but some industry spokesmen see those advancements slowing down.

"Oil companies have virtually eliminated research and development programs, leaving it to contractors," said Dick Miles, Grant Geophysical's president and chief executive officer. "But the geophysical industry today simply doesn't have the funds for a large research and development effort, so the whole cycle of technology advancement, which in the past has been rapid and continuous, will slow down."

That, he said, makes the future of the geophysical industry a little hazy.

"Technology has always opened new markets and allowed the industry to thrive," Miles said. "The next few years will be interesting."

In fact, Miles and Chenault believe the industry has a couple of more lean years to weather before any substantial recovery begins.

"Seismic contractors did a very good job in the 1990s of shooting large 3-D seismic surveys, and there is still a big bubble of prospects out there that don't need further seismic," Miles said. "There is also a big bubble of speculative data on the shelf that will feed another bubble of prospects.

Miles added that he went to a talk by the president of a small independent oil company recently who said his firm has an inventory of 200 prospects ready to drill - "about a two year backlog," he added.

"Clearly, we are not in the free fall that we experienced a year ago," Jones said. "Business has stabilized. The question now is, will it remain at this level with modest growth, or are we going to have more expansive growth in the near term? I don't think anybody really knows right now."

What everyone is sure of is that in the long-term, seismic will always have its place.

"When we interview customers and ask them what is the most important technologies in the last 20 years, they all say 3-D seismic by a wide margin," Chenin said. "Any report you read about our industry says that 3-D seismic far and away has created the most value for oil companies of just about any other tool, and that's because of 3-D's inherent ability to reduce risk.

"That isn't going to change in the future," he added. "Oil companies know they need seismic technology to succeed."

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