It's a bit early for a full-scale celebration, but there's more than a hint of optimism sweeping through the geophysical industry -- a notable contrast to the rampant pessimism that permeated the business over the past few years.
"Business is good, as it should be with oil prices in the upper $40 range and gas around six bucks," said Steve Mitchell, operations vice president at Fairfield Industries. "In fact, we're seeing a lot of good things happen as we've moved into new things -- such as reservoir imaging tools -- with our new nodal system."
"Things really have improved," noted Chip Gill, president of the International Association of Geophysical Contractors, "but we have to remember how far down things were and how far up there is to go."
Thierry Pilenko, chairman and CEO at Veritas DGC, concurs.
"Overall, the seismic industry is improving," Pilenko said. "But we were coming from a period so bad, we're not yet in an area of profitability that would make us completely happy with the situation.
"The improvement is across the board," Pilenko noted, "and some sectors are doing better than others."
Blue Skies
One of the good news sectors is the marine business, where over-capacity, especially for high quality 3-D vessels, has diminished.
"The past few months, we've been talking with customers trying to secure assets for next summer and the second half of '05," Pilenko said.
"They're aware the over-capacity period is over. As recently as late spring of last year, customers were making decisions about shooting 3-D and calling for tenders only two-three weeks before the project."
Another area experiencing considerable growth is the processing arm of the industry.
"Acquisition activity started to increase in 2004, and across the board we started to see the demand for high quality processing moving up," Pilenko said. "This is especially true for imaging illuminating areas below salt in the Gulf of Mexico, for example, where high quality imaging technologies, such as prestack depth migration (PSDM) and wave equation migration, are in high demand."
Even though Veritas continues to embrace the multi-client business successfully, many companies now opt to keep their distance from this business model, still haunted by mistakes some made in the past such as acquiring data just to keep boats and crews busy. Pilenko noted, however, that in such hot areas as the Gulf where a plethora of properties will soon be offered in upcoming licensing rounds, data libraries capable of illuminating below the salt with proper PSDM will be a good business.
It is noteworthy that as the energy-hungry world pushes the need for new reserves and increased production from existing reservoirs, what once was old is new again.
"We not only see money being spent on exploration projects once again," said Peter Duncan, president of Microseismic Inc. and past president of SEG, "but, interestingly enough, we see this in North America, which went dead for awhile."
Another so-called mature region, the North Sea, also is experiencing a new life, as far as exploration is concerned. As the super majors are exiting, Pilenko noted smaller players are coming in and looking at their multi-client data, which were shot with longer offsets, and making decisions about potential deeper prospects and having good success.
The China Syndrome
The marine business may be getting its groove back, but the land side of the industry is a whole other story.
The barriers to entry on land are low, financially speaking, and there is a lot of equipment and knowledge readily available to set up a land acquisition company, whether domestic or international.
Consequently, the land business has become very fragmented and increasingly competitive.
"We're seeing new entrants and new capacity coming in," Gill said. "It seems to be primarily where national oil companies (NOC) want to grow a homegrown industry, and they're starting geophysical companies to service their needs."
Perhaps the most striking success in the NOC arena is seasoned veteran BGP Inc., which is the largest land and shallow water seismic contractor in the world. BGP is a wholly-owned subsidiary of China National Petroleum Corp. and operates 94 field crews around the world.
"We're in the land and shallow water business only," said Rick Ward, vice president of business development of BGP International. "We've grown our international business by 50 percent every year for the last four years, and we anticipate adding more crews next year."
BGP has no field operations in the United States and no deepwater marine activity -- at least for now.
Ward noted they are expanding their shallow water operations and are looking at the marine market.
"BGP continues to be an aggressive competitor, seeking opportunities anywhere we can find them," he said. "If we find the right situation, we'll get into the marine business."
A Matter of Perspective?
For some time the oil and gas players and others have expressed concern about the demographics of the industry (see related story page 14). This "people-issue" has the potential to become a particularly thorny problem for the geophysical community.
"The geophysical departments of the oil companies have been downsized, thinned out," Gill said. "As they're looking to grow their business on the exploration side, recognizing they can't buy their way to more reserves, they're thin on geophysical expertise. This means they're likely to go to geophysicists at the service companies to fill their ranks."
"The service companies have kept a high level of recruiting and developing geoscientists and reservoir engineers," Pilenko noted. "The biggest challenge over the next few years will be the ability to retain these people."
Another troubling issue yet to be resolved in the industry is the tendency of the oil and gas companies to shift risk onto the contractors, which hinders their ability to realize the benefit of any increase in tender prices. In fact, the geophysical industry is exposed to more risk than any other oilfield service sector, Gill said.
"We as a group have been asked to take on risk we shouldn't have, and we took it because our strength in contract negotiations eroded over time," said Magne Reiersgard, president of PGS Marine Geophysical NSA.
"We hope the market will give the opportunity to get a more balanced risk profile between the oil companies and the contractors," he said. "We're pushing for this, and would like to think others are pursuing the same avenues."
Even though industry participants in general are optimistic about the uptick in activity, the reality of the recent past continues to have an impact.
"I think the market forces are in play for commodity prices to stay reasonably strong for a longer period than what we saw in the late '90s, where gas would zoom up and zoom right back down," Mitchell said.
"But if you've survived the last 20 years in this industry, you know how to look over your shoulder and plan, or at least you should," he noted.
"Even though things should continue to be good, every now and then you need to look behind you and not forget where you came from."