GOM a downer for now, though

Seismic Seeing Uptick in Demand

Though the seismic industry has been through some tough times, recent trends suggest a cautious return to a more active era and a more positive mood across the profession. Photos courtesy of PGS
Though the seismic industry has been through some tough times, recent trends suggest a cautious return to a more active era and a more positive mood across the profession. Photos courtesy of PGS

Is that light at the end of the geophysical tunnel getting brighter?

Maybe so. The consensus of many participants in the seismic business is that activity levels are looking fairly respectable these days.

“One thing people are saying is the seismic industry has sort of bottomed out,” said Gregg Parker, senior VP of corporate marketing at PGS. “It’s been through a downturn and coming up.”

AAPG member Robert Hobbs, CEO at TGS, concurred.

“Seismic in general is positive,” he said. “We’re still seeing a recovery based on oil companies return to investing in exploration versus where we were in late ’08 and early ’09.”

The uptick appears to be widespread, according to Bob Peebler, CEO at ION Geophysical.

“From a macro perspective, we see activity picking up not only in North America but also many markets around the world, in places such as Russia and the Middle East,” Peebler said. “It’s not a strong market, but it’s better and it’s improving.

“There’s still enough uncertainty in the global economy that we don’t think people are clinking their champagne glasses,” he noted. “They’re still cautious.

“We think the market should be stronger in 2011, barring the economy going back in the ditch completely,” Peebler added.

Sounds reasonably rosy.

But there are thorns, particularly in the marine side of the business.

Think Gulf of Mexico drilling moratorium resulting from The Big Spill.

“Most people, both on the customer and service side, are all kind of waiting to see what develops in terms of regulation from the U.S. government,” TGS’ Hobbs said. “There’s concern of what’s going to happen from a regulatory standpoint and, as a result, who will play, who will be able to play.

“We make our investment decisions on the number of customers we think might be interested in investing in new projects,” Hobbs continued. “So we’re waiting along with everyone else to see who those will be.”

TGS uses a business model that entails putting together multi-client projects and then chartering other companies to acquire the data. Hobbs emphasized there’s no concern over investments already made in the Gulf, and the most recent one is ahead of schedule in terms of sales.

John Walsh, VP of corporate marketing at PGS, which currently has no GOM surveys in progress or planned, noted that the moratorium has slowed the decision-making process among customers who are awaiting the outcome.

“There’s a slowdown at the moment, but it also could have a knock-on effect in 2011,” Walsh cautioned.

“The way the multi-client business works is you shoot a survey, and at some point you spend a few months processing and sell it the following year,” Parker said. “If companies aren’t able to shoot at present, then they can’t process over the winter to be able to sell in 2011.”

Questions in the Gulf

A potential upside stemming from the present conundrum for the data folks and others is that customers may place more value on the benefits of high resolution seismic in planning and implementing drilling/exploration programs, according to Parker.

No one is predicting the Gulf will once again revert to its Dead Sea status of a number of years ago.

It’s too valuable.

“For the most part, everybody recognizes that the Gulf of Mexico is still going to be very important for hydrocarbon production,” Hobbs emphasized. “There’s no doubt about that in the long term or even medium term.”

While there’s justified hand-wringing over who has the staying power to deal with the increased costs and stringent – maybe near-impossible – rules and regulations expected to come down the pike, the drillers and seismic companies both have other challenges to overcome in the Gulf as well.

For example, there’s litigation focused on the federal government’s reported violation of the Marine Mammal Protection Act and the Endangered Species Act.

“This is a big deal now for deep and shallow water,” said Joe Dryer, VP of data licensing at FairfieldNodal. “Several groups, including the Center for Biological Diversity, are suing the government for ignoring the marine mammal protection laws.

“The lawsuit is aimed at the overall industry, not just seismic,” Dryer emphasized. “It’s getting a lot of attention now.”

The center filed a formal notice of intent to sue May 14, 2010. At press time, the group had not filed the actual lawsuit.

The organization reportedly accused the Department of the Interior, under Secretary Ken Salazar’s watch, of approving three lease sales, more then 100 seismic surveys and more than 300 drilling operations without authorizations required by the protection laws.

Among many other grievances, there are long-standing complaints by environmental groups that noise generated via seismic and drilling activity is harmful to the mammals in numerous ways, e.g., potentially interfering with their communications.

Global Activities

Despite some of the dark clouds hovering over the industry, the sunshine does peek through.

There’s buzz making the rounds that some non-Gulf players are contemplating the potential benefits of partnerships from companies mainly focused on the Gulf and now looking elsewhere. This could be quite beneficial for the players having other areas to work.

There are plenty of these areas, and the seismic folks are right there.

“PGS is marine-focused from an acquisition standpoint,” Parker said. “We have vessels worldwide, including the North Sea, West Africa, Brazil, Asia Pacific.

“In fact, Asia Pacific is growing for us at the moment,” he noted. “We’ve moved some of our new technology into the region.”

TGS has announced several large pre-funded 3-D surveys in northwest Europe and West Africa.

Hobbs noted they also have a large 2-D survey that covers all major basins offshore Brazil.

“When we go into a basin, we acquire regional 2-D data and often go back for 3-D,” he said. “We look to continue investing in Brazil; it’s been a good area for us.”

Brazil has long been alluring to the industry, even more so now with all the pre-salt action and new production.

“We have a long-term contract with Brazil, and have had more than one vessel there over the course of two years,” Parker said.

The company has been working Brazil for about 15 years and has one of the largest of its 20 data processing centers located there. In fact, the processing center in Rio de Janeiro is going into a large upgrade due to back orders, and the company has been awarded a fiber optic fixed installation project at Jubarte Field in the Campos Basin offshore Brazil.

The marine business needs to undergo a slim-down of sorts.

“There’s still over-capacity in our industry,” Walsh said, “and that could hurt some companies.”

TGS’ Hobbs agreed.

“The marine industry is still oversupplied,” he said. “It will take a while for seismic demand to match what new capacity the industry brought out recently.”

He noted that the mid-year E&P surveys are encouraging for the seismic industry.

“There don’t appear to be significant reductions in E&P spending this year,” he said. “This tells me there’s quite a bit of money left to invest in exploration this year, especially when you recognize it’s not being invested in the deepwater Gulf of Mexico now.

“If not there, it’s going to be spent elsewhere like frontier basins outside the U.S.,” Hobbs predicted.

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Emphasis: Geophysical Review