Now you see it. Now you don't.
It's the latest "energy crisis" whizzing by, leaving a near-epidemic
of whiplash in its wake.
Despite the proclamations that the "crisis" is over and Wall Street's
renewed general disdain for energy industry stocks, one basic fundamental
remains constant: The world still runs on oil and gas.
So
business continues in the Oil Patch.
After all, gas prices that hovered around $3/Mcf in mid-summer
are not too shabby, and OPEC's latest production cut shows it's
determined to keep oil trading in the $25/barrel range -- or maybe
more.
When commodity prices were in the midst of a dizzying ascent last
winter, most segments of the industry were running full-speed ahead.
The spate of ramped-up activity goes on unabated, for the most part,
even though prices are off their lofty highs and demand has softened
-- for now.
Perhaps nowhere is the pulse of the business monitored more closely
than the geophysical industry, which has yet to regain the momentum
it enjoyed prior to the last downturn.
"Seismic is still at the bottom of the food chain," said Marc
Lawrence, senior vice-president at Fairfield Industries. "We're
better, but it's not nearly like the heyday of the mid-'90s, when
there were 35 or 40 crews shooting in the Gulf of Mexico," he said.
"Now, there's just a handful."
That earlier, extreme level of data acquisition activity put vast
quantities of seismic data in the marketplace, which is one of several
reasons for the ongoing malaise, Lawrence noted.
Contributing to the problems plaguing the geophysical industry
is the oil and gas producers' recent all-out push to enhance production
to capture the benefit of the latest price spikes. With the emphasis
on the borehole, interest in new seismic data was placed on the
far back burner.
"We need a re-balancing of the E&P pipeline, from rank new
ventures and new prospects, to established exploration, field development,
field extensions and so forth, all the way to asset divestiture,"
said Doug Elrod, director of corporate strategy at IndigoPool.
"Ordinarily, there's a steady flow of these activities," he added,
"but things got out of whack, so demand for geophysics has not increased
as much as for other oilfield services."
He noted there are, in fact, some beefed-up seismic programs in
place, along with increased purchases of the popular multi-client,
or "spec," geophysical data -- but he said it's not across-the-board,
because the various E&P companies are executing very different
game plans.
Hey, Where'd Everybody Go?
As the industry strives for ever-increasing efficiency and profitability,
the number of E&P companies continues to dwindle with the proliferate
merger activity, sending shivers down the collective spines of the
geophysical data gatherers.
When a company is expecting several sales of a data set to break
even and the anticipated purchasers join forces, bad things happen.
Bert Chenin, vice president offshore North America at CGG Americas,
puts it into perspective:
"A multi-client project goes well when you have multi-clients,"
he said, "but when there's only one client left, it's difficult
to do multi-client projects."
Mergers create problems for the data folks beyond the reduction
of clientele, said Jonathon Miller, president of CGG Americas.
"There's always a period of one to two years when there's virtually
no exploration, while the merging companies assess properties and
strategy," Miller said. "That probably has had more of a negative
impact than anything on our business."
Besides the mergers, the client base for multi-client data is
being reduced further by the increase in partnering activity among
the E&P companies, according to Martin Stupel, manager multi-client
technology North and South America at WesternGeco.
He said this is especially true in the growing international markets,
where a lot of oil companies partner early-on in the exploration
stage, rather than having a discovery and then partnering to reduce
cost and share risk.
Just as the oil and gas finders are joining forces, so too are
some of their geophysical brethren, with the latest linkup being
the PGS purchase of Diamond Geophysical.
"We historically have sold our vast library of Gulf of Mexico
data through third party brokers," said Mark Wilkinson, president
exploration services North and South America at PGS. "Because of
that, we weren't getting the market penetration we wanted in the
Gulf compared to other regions in the world like Brazil, Europe,
West Africa and Asia Pacific where we're recognized as an industry
leader.
"Diamond was a recognized leader in the Gulf," he said, "and the
purchase will provide us direct access to clients and allow us to
internalize some of the technology and marketing capability they
have exhibited in the past."
Not surprisingly, conversations with the experts regarding the
industry's future almost always include the potential for evermore
oil and gas activity in the Gulf of Mexico (GOM) -- that mainstay
of the domestic industry, where U.S. warships have never been called
to safeguard the platforms.
Royalty Relief
A relatively new allure of the GOM is the deep drilling royalty
relief for natural gas, noted Fairfield's Lawrence. For certain
leases, The Minerals Management Service (MMS) offers royalty relief
on the first 20 Bcf produced from reservoirs deeper than 15,000
feet in wells drilled on the Continental Shelf in less than 200
meters of water. For production from leases acquired at the last
Central Gulf sale, the program kicks in when the gas price breaches
a threshold of $3.50/Mcf.
The economic threshold is $5/Mcf for leases acquired in the Western
Gulf sale in August.
This bodes well for companies supplying such data as 2-D and 3-D
seismic, gravity, magnetics and such.
"Because of the royalty relief, we're seeing a lot of companies
that divested Shelf acreage now re-entering the Gulf very aggressively,"
said Brian Anderson, vice president of marketing at Fugro-LCT, which
is the exclusive broker for seabed gravity data covering the Shelf.
"It's not a cheap, simple problem to drill those high pressure,
high temperature wells," he noted, "and the expense and complexity
will drive the companies to look a lot harder and longer at the
geophysics."
New Directions
Change is in the air, too, when it comes to the kind of data the
oil and gas companies want.
"We're moving beyond typical exploration seismic data sets in
the multi-client market," said Stupel at WesternGeco. "The oil companies
are interested in investing in data sets that will help them further
down the line. They need better delineation of prospects they have
identified and some kind of appraisal 3-D.
"There's a need for higher resolution data over existing fields
to identify bypassed oil, to produce more efficiently and to look
deeper," he said. "The potential is there, but it just takes the
contractors a bit of time to accept the risk to go into that market."
This is due in large part to the high cost to acquire detailed,
high-resolution data using maybe 12.5-meter line spacing as compared
to the cost for the relatively coarse data suited for exploration,
where line spacing can be as sparse as 40 meters.
Stupel likens the scenario to the leap from 2-D seismic to 3-D,
where producers were only willing to spend money on the pricier
3-D data after a discovery. "Over time," he said, "they saw they
needed 3-D to identify a potential discovery before drilling a wildcat."
Even so, there's still a clamor for modern 2-D in the right places,
such as frontier basins where it's not practical to acquire non-exclusive
3-D data.
"We see demand for 2-D in a lot of these basins, where it doesn't
make economic sense to shoot 3-D," said John Adamick, vice president
of business development at TGS, which has a storehouse of both kinds
of data. "Two-D is less expensive to acquire, and it costs the oil
company a lot less to license the data and evaluate the basin.
"We're even shooting 2-D in the Gulf, where companies find it
useful in certain instances," he added, "like when they're looking
at a deeper play."
Chenin at CGG noted the GOM kind of reinvents itself every five
years or so with new technology that comes along. He predicts this
year will be the year of 4-D, or time-lapse surveys, in the GOM.
But the year of 4-C, or multicomponent data, has yet to materialize.
It is, in fact, very much on the horizon, say the data folks (see
related story, page 10) -- but it's pricey and complex.
"The seismic acquisition and initial seismic processing questions
have been solved for that," Stupel said, "and it will really take
off once there is a breakthrough in the way oil companies can use
and interpret that data."
Lawrence concurs.
"It's a lot of work to correlate new multicomponent data with
wells to try to find what the signatures are to do the direct hydrocarbon
detection it's theoretically capable of and differentiate between
fizz water and gas sands and such," he said. "But multicomponent
has been proven in the North Sea, and it's going to be a powerful
tool when someone figures out how to use it in the Gulf of Mexico.
"It has the potential to make the same kind of increase in wildcat
success rates as the switch from 2-D to 3-D," he predicted, "and
those that embrace multicomponent first will pick the low-hanging
fruit."
The new buzzword in the seismic industry, according to Lawrence,
is "long offsets." As the E&P companies increasingly look deeper
in the subsurface, he said they tend to want 10,000-meter offset
data, which is useful to evaluate various angles of incidence for
AVO evaluation.
The flurry of activity to head in new directions with geophysical
data sets calls to mind comments from IAGC president Chuck Darden:
"If there's anything we've learned through the years, it's to listen
to the client," he said, "and he's telling the contractors and others,
this is what I want."
Darden sees E-commerce via the Internet emerging as another critical
component to help drive the industry in the future. He noted its
tremendous potential to merchandise geophysical data and to support
new business models to apply new technologies (see related story,
page 14).
"I still see our people struggling hard out there to find revenues,"
he said. "There's got to be a lot of soul searching and strategic
planning being done over what the blueprint is for the future in
geophysical exploration
"But we've always been light on our feet, or else we would not
have survived."