The seismic industry globally is expected to be much tighter in 2014 than in recent years – but due to local licensing and policy developments in certain jurisdictions, some corners of the world are expected to see a sharp uptick in demand for seismic services.
“It’s a transitional year between what’s been a very good market in 2012 and the first part of 2013 into a more challenging market in the middle of 2013, when companies started to pull back a bit in terms of their seismic activity,” said Kristian Diesen, a financial analyst for Pareto Securities, an Oslo, Norway-based investment firm with a strong presence in the international oil and gas sector.
Diesen spoke about the market outlook for the year to come at the annual meeting of the International Association of Geophysical Contractors in Houston last month.
He explained to the EXPLORER that seismic demand tends to correlate with oil companies’ E&P spending, which had been growing by 10-15 percent each year from 2010 to 2012, but slowed to about 8 percent in 2013 – and is expected to grow only by about 6 percent in 2014.
“That’s globally,” he added. “That’s not anyone’s particular E&P spending.”
Diesen’s remarks aligned with the expectations of other industry experts.
“I think we’re going to be seeing slower growth in the seismic business this year than we have in past years,” concurred AAPG member Robert Hobbs, CEO of TGS, a multi-client geoscience data company that does the bulk of its business in the seismic sector.
Hobbs also is chairman of the IAGC.
He reiterated that seismic spending typically follows overall E&P spending, but it appears that it will be a little bit less than E&P spending in 2014.
“I think it’s because oil companies are looking at really managing costs this year,” he said.
“Oil company shareholders are wanting the companies they’ve invested in to start showing returns for all the exploration dollars they’ve spent over the past four or five years, and there’s been a lot of money spent in exploration … Now there’s a big push for oil companies to start returning some value back to their shareholders from all this money that’s been spent,” Hobbs continued.
“It’s not a major downturn – don’t get me wrong,” he said. “It’s just a temporary period where oil companies are just monitoring their costs very closely.”
No ‘One’ Is to Blame
Diesen and Hobbs both said they based their analyses on quarterly reports from several major and independent oil companies.
“When I got through the Q4 reporting, there’s an overriding theme from the oil companies,” Diesen said. “Cash-flow focus and capital discipline – and that, of course, translates into a more challenging seismic market.”
That’s the bird’s eye view of the global seismic market, but the picture looks much different up close, depending on which pockets of the world are in view.
“The seismic market is extremely dynamic, and it’s quite volatile from region to region,” Diesen said.
“For instance, if you take this winter, West Africa has been extremely quiet … A year ago, you had this big presold Angola service and West Africa was very good.
“On the other side, the Gulf of Mexico was down in 2010, ’11 and ’12, but has started to come back. Brazil has been down for quite some time, but we’ve actually seen increased activity again close to this time last year,” he said.
“Brazil is up, West Africa is down, if you’re just talking about the current snapshot. I think the North Sea this summer is probably going to be fairly flat here and there. Asia has been soft for quite some time, and that’s likely to continue,” Diesen added.
“Those are some of the main regions, but I wouldn’t highlight any one region in particular that’s sort of causing the softness,” he said. “This is an overall, macro-trend in the sense of why companies are reluctant to spend. And it’s not any particular region, because the economics there aren’t any poorer than anywhere else.
“I wouldn’t attribute the weakness to any particular region,” he reiterated.
Around the World
Market forces are shaping the generally weak seismic sector globally, Diesen explained, but region-specific licensing activities and public policy changes are creating hot spots in various places.
Many investors, for instance, will be watching Mexico with keen interest for the next few years, resulting from a major policy-shift in the country’s energy policy (see related article on this page).
Hobbs joined Diesen in singling out Brazil as an emerging hot spot, owing to the country’s first round of licensing in several years.
Hobbs explained that the Brazilian government went from 2008 to 2013 without any license rounds.
“I think you’re going to see more seismic vessels working offshore Brazil from those oil companies in 2014 starting to acquire the data they’ve committed to as part of their bids to the Brazilian government,” he said.
Also, Hobbs said the number of seismic vessels operating in the Gulf of Mexico has doubled to about a dozen over 2013’s activity.
“That’s activity that’s going to be focused on acquiring higher-end technology to solve the remaining imaging problems from the subsalt of the Gulf of Mexico,” he explained. “It’s quite an active year so far for deep water off the Gulf of Mexico.”
Also, Hobbs said northwest Europe, and the Norwegian Barents Sea in particular, is seeing an uptick in activity in the seismic sector.
“There’s a consortium of oil companies that will be undertaking quite a bit of 3-D activity in the southeastern Barents Sea, as part of what’s called a ‘group shoot.’ I think you’ll see several large 3-Ds being acquired there,” he added.
Overall, though, Hobbs reiterated that caution and spending discipline will characterize the seismic industry for the year to come.
“There seems to be a focus on cost management in oil companies, so I think they’re high-grading areas of the world that they’re planning to work in, and making sure they manage costs appropriately,” Hobbs said.
“So, I think the seismic spending that they do in 2014 is going to be looked at very carefully.”