Did you hear the one about the fella
with a cell phone for an office and no seismic equipment, jockeying
with the big seismic industry's guys for a job?
Before you laugh, get this: He was low bidder by
several million dollars on a sizeable data acquisition project.
Rubbing salt into an open wound, he then proceeded to call the contractors,
offering to do a deal in exchange for capacity.
This bizarre tale speaks volumes about the current
dire straits of the once-robust geophysical industry.
E&P companies seemingly are awash in 3-D seismic
data, contractors have enormous surplus capacity eating up the balance
sheet, and the rig count is abysmal. Not surprisingly, the contractors
have been nailed to the wall by the oil finders who have all the
leverage when it comes to cutting deals for data and services.
The challenges the industry must address are varied
- Consolidation of the customer base, i.e.,
- Tendency on part of clients to view data
and services as commodities to be bargained for as cheaply as
- Clients' use of "brute force" in the form
of market power to attempt to shift risk to seismic service provider.
- Denial and/or ignorance of non-exclusive
data ownership rights.
- Changing standards for safety performance.
- Quick-changing and evermore onerous environmental
rules and regulations.
Despite all the finger pointing, however, the consensus
among most members of the geophysical community is the blame for
the current situation rests on their collective shoulders. After
all, it was they who overextended during the 1990s as the clamor
for 3-D reached a frenzied pace.
"I don't blame the oil companies for taking advantage
of us if it's thrown their way," said Jim White, vice president
North and South America for WesternGeco. "They're now in a position
to capture the value of seismic at a fraction of the cost.
"Kudos to them for knowing to take advantage," he
said, "and silly on us for not knowing better."
Amazingly, when industry giant WesternGeco recently
decided enough was enough and shut down its sizeable land operations
in North America, except for Alaska, the action caused nary a ripple
among its clients.
"We thought it would send reverberations through
the industry," White said. "But our clients weren't concerned, and
I don't think it was that big a deal for them.
"It's a short-term mentality, and I think they need
to be thinking long term," he said. "When other companies like us
start shutting operations, it will leave them in a real lurch, because
the dramatic drop in R&D spending will really hurt them."
Owning the Orchard
It's popular in some corners to tie the decreased
demand for seismic data to the continuing decline in drilling activity.
Varied reasons for this decline have been proposed, but some industry veterans think the oft-mentioned lack-of-prospects
theory should be laid to rest.
"If you truly believe there's a lack of prospects,
then you need more seismic data," said Marc Lawrence, senior vice
president at Fairfield Industries, "so there's no lack of prospects.
"It's just that the shallow, easy stuff is gone,"
he said. "So now is the time to apply technology — but they're
staying away from it in droves.
"For instance, multi-component seismic technology
has a lot to offer, but no one embraced it" he said. "We offered
it, but the market didn't respond, so we had to pull away from it
because we're not going to give data away this time."
Many companies, including the big guns, are eyeing
the deep gas potential (>15,000 ft.) on the Gulf of Mexico shelf.
This activity likely will require additional data because the plethora
of earlier shoots in this region were undertaken using acquisition
parameters that aren't necessarily ideal for the deep targets being
Still, random unique areas such as this are not sufficient
to keep a whole industry churning along as in the glory days of
the recent past.
"I can't find an E&P company who says they don't
have enough seismic data," said James Wicklund, managing director,
energy research at Bank of America Securities. "Some say they're
looking at a brand new area and will have to buy some new data,"
he said, "but I refute the idea you must have data going forward
at an ever-increasing rate.
"And if the top 15 companies in the Gulf have bought
every block with 3-D in the Gulf because it's been shot, then how,
going forward, will this be a growth business?
"It's like buying an orchard to get apples," Wicklund
said. "You go from tree to tree, and your chances of running out
of apples anytime soon are greatly reduced," he said. "After all,
you own the orchard."
'Serious Dialogue' And Proactive Steps
For 2003, Wicklund predicts the primary activity
of the seismic business will be reprocessing of seismic data. Although
a good business for the seismic folks, he noted it's not enough
on its own to promote higher revenues and earnings.
One of the industry's many problems is over-capacity
in the spec business, both land and marine, and the contractors'
unwillingness to address this in many instances.
"They say they're retiring two boats, but then announce
they're coming out with a new one that's six times more efficient,"
Wicklund said. "Net-net: they've just increased capacity."
The contractors are grappling with the problem.
"We see capacity being taken out, but it's an individual
choice," said Chip Gill, president of the International Association
of Geophysical Contractors. "It's both involuntary, like the CGG
Mistral that sank in December, and voluntary, like WesternGeco laying
off land crews and retiring boats."
He concurred with Wicklund that new capacity seems
to pop up as the old goes out.
Desperate times call for desperate measures. The
rumor spreading through the contracting community holds that spectators
have witnessed grinders going to work on geophones and cables when
crews are retired to ensure the equipment doesn't get back in through
the back door.
Although the hole the industry sits in is largely
self-excavated, Gill asserted a large piece of the current problem
stems from the clients. He noted they have not hesitated to take
advantage of the contractors, at the same time acknowledging they
can't be blamed for doing so.
To salvage what's left of the geophysical industry
and regain some semblance of financial strength, he noted the E&P
companies and the geophysical folks are going to have to engage
in some serious dialogue.
"We're in a weak economic position compared to our
clients, and we're limited in what we can do together by anti-trust
laws," Gill lamented. "We've got two hands tied behind our backs."
Nevertheless, he pulled out a list of initial proactive
steps for the service providers:
- Shine a spotlight on the circumstances
and pose tough questions, e.g., What do E&P companies expect
out of the geophysical industry going forward? Do they want back
into the geophysical business?
- Shine a spotlight on the abuse of data
ownership rights to help curtail it. A deal's a deal, and leveraging
concentrated purchasing power and market clout to negate the terms
of the contract are flat out wrong.
- Shine still another spotlight on the value
of the non-exclusive data business model to resource managers
and governments so they understand the contribution it brings
to the full cycle economic engine that fuels the E&P industry.
The Next Big Thing
There's another school of thought that says it's time
for the geophysical community to aggressively reinvent itself.
Since the E&P industry got most all they need
of the last big thing, the seismic industry is going to have to
come up with something blockbuster as the next new big thing, according
"The idea of providing data is becoming antiquated
in every industry," Wicklund said. "The trend is to provide solutions,
which the seismic industry has not yet learned to do, even though
they would argue they do this indirectly.
"It's the oil industry geologists and geophysicists
who provide the solution, i.e., where to drill and what prospects
"The seismic companies may say it's not their job
to pick drilling locations but to provide the tools," Wicklund commented.
"But these days you don't provide the tools, you fix it for them.
"The seismic industry has to take all the tools it's
got and provide an integrated solution to the industry that will
look a lot like doing the oil companies' job for them," he said.
"This has been the resistance point in the past."
In other words, the seismic industry must make what
will be a very difficult transition from being a data service provider
to being a partner and a solution provider.
"The oil and gas companies don't need more data;
they need more time in the day," Wicklund said. "If a seismic company
comes in and says here's a worked-up qualified drilling prospect
with the economics run on it, then instead of giving you a bag of
groceries they've given you a meal from Eatzi's," he said. "That's
where it's got to go."
Thoughts about change are being voiced by others.
"The general gloom today may prompt a reshaping of
how the geophysical industry does business," said Chris Usher, president,
worldwide data processing, PGS.
"We may be much more clever, such as outsourcing
of certain capacity into alliance formats where the lines are maybe
blurred a bit," he said. "Why have fixed capacity when someone else
could take the risk?"
Regarding the pervasive feeling among the data gatherers
that the clients don't feel their pain, Usher had some encouraging
"The oil companies are alert to the problems of the
industry," Usher said. "The largest companies with the longest term
outlook understand that a healthy contractor community is good for