Facing a challenging situation and low demand, geophysical companies found themselves in a hole after the energy industry’s latest, coronavirus-related downturn. They’ve been trying to dig themselves out for the past year.
The good news is, that effort now appears to be working, as higher oil prices begin to have an effect and more positive signs emerge in the second half of 2021. But many of those companies continue to struggle with difficult financial conditions, especially onshore.
One large seismic services provider fell victim to the industry’s economic downturn this year and another announced spending cuts and a strategic realignment in September.
Slow Impact of Higher Prices
Sophie Zurquiyah, CEO of French geophysical company CGG, noted that 2021’s higher oil prices have been slow to translate into geoscience-related spending.
“Considering the lack of investments by E&P companies, the need to increase spending to better understand the subsurface and develop new opportunities has continued to grow,” Zurquiyah said in announcing CGG’s first-half results.
“Among our three businesses, multi-client has been the most affected by the spending delays. Looking forward, following the soft first half of the year, activity is expected to strengthen in the second half of 2021 and onwards,” she added.
Zurquiyah said “technology innovation, business diversification and cash generation remain our top priorities.”
Cash and balance-sheet issues remain primary concerns for seismic providers, with softness in the multi-seismic market a special concern. Multi-client seismic generally includes data from seismic surveys worldwide owned and offered by geophysical companies, which may be held in their data libraries.
“As described in previous reports, the market conditions for multi-client seismic data continue to be very challenging, and there are no signs of substantial improvements in the near-term,” said Kristian Johansen, chief executive of geophysical firm TGS ASA, in discussing first-half results.
“However, based on dialogue with our largest customers, we remain confident that we will ultimately see a recovery of the market,” Johansen added.
PGS ASA, an integrated marine geophysics company, did manage an improvement in multi-client revenue in the second quarter of 2021, driven by sales in mature areas offshore Norway and the UK. The company reported that “new multi-client acquisition activity was modest in the quarter and focused on proven basins with strong client interest.”
ION Geophysical Corp. introduced a $15 million to $20 million cost-cutting initiative earlier this year, following a $40 million-plus cutback in 2020, citing an effort to reconfigure its business. It predicted the seismic market “will continue gradually improving yet remain challenging in the near-term.”
In mid-September, ION announced that it will “evaluate a range of strategic alternatives to strengthen its financial position and maximize stakeholder value as the company continues to assess conditions in the capital markets and right-size the business.”
Those alternatives include “a sale or other business combination transaction, sales of assets, private or public equity transactions, debt financing, or some combination of these,” ION reported.
In January, international seismic services provider Polarcus Ltd. went into debt-payment default and lenders took control of its seismic vessels. Shearwater GeoServices AS later bought six of the seismic acquisition vessels for $127.5 million, and streamers and related seismic equipment for $50 million. A bankruptcy court placed Polarcus in official liquidation in June.
Onshore seismic took a major hit from last year’s downturn, as early-year 2021 revenues almost dried up for some companies. Dawson Geophysical Co. of Midland, Tex., reported a net loss of just over $9 million for the second quarter of the year compared to a profit of $1.5 million a year earlier.
Stephen Jumper, company president and CEO, said “the second quarter and into the third quarter (of 2021) will reflect a low point for Dawson in terms of activity levels.”
“While today’s conditions in the seismic data acquisition market remain challenged and are likely to remain so in the coming months, we are encouraged by the overall improvement in both the economy and the oil field service sector,” Jumper said.
“The recent increase in drilling and completion activities, combined with hedging contracts that will ultimately unwind, sets the stage for a successful recovery,” he added.
Gradual Demand Increase Expected
While multi-client and onshore seismic struggled, higher oil and gas prices benefited other parts of the geophysical and service sector. Schlumberger reported revenue growth in all four of its industry divisions.
“Driven by the demand-led recovery, the second quarter of 2021 marked the early innings of an exceptional growth cycle. While COVID concerns persist, we remain constructive in the growth outlook,” said Oliver Le Peuch, Schlumberger chief executive, speaking in September at the Barclays 2021 CEO Energy Power Conference.
“Industry projections of forward demand remain very strong, the pipeline of activity continues to build across a broad set of customers and our market positioning continues to strengthen. As such, we remain confident about the prospects of this upcycle, with multiyear broad activity growth,” he said.
A new wave of COVID-19 infections around the world added a further degree of uncertainty to the pace of market improvement for geophysics. Despite the obstacle, PGS predicted that higher oil prices and continued COVID recovery would drive a gradual demand increase for seismic services going into 2022. The company reported that it expects its full-year cash costs to total $425 million, up from an earlier projected $400 million, in a sign of increasing levels of industry activity this year, especially offshore.
With reduced exploration-related expenditures and energy-transition uncertainties, geophysical firms have been seeking out additional income possibilities.
Binny Bagga, vice president of energy service research for Rystad Energy, said, “Well and seismic companies cannot expect to see their overall market grow, as the much more well-intensive oil market will require fewer wells to be drilled over the coming decade.”
One new focus for large geophysics companies is seismic work and analysis to identify injection sites for the carbon capture, storage and utilization industry. They are also dedicating some marine vessels to support offshore wind-power activity.
In a September presentation, TGS described itself as “transitioning to other energy data types” and developing decision-support tools for solar, wind, geothermal and other energy segments, in addition to carbon capture. It labeled the oil industry’s recent low exploration-activity level as “not sustainable.”
CGG and PGS signed a memorandum of understanding in July to combine their seismic multi-client products and technical capabilities for CCS applications. They announced a plan “to join forces and unlock the value of existing seismic data for carbon storage evaluation.”