Category description

Seismic survey is a key tool an oil company would use when exploring for hydrocarbons. Not only does it increase the exploration success thus reducing risk, it allows operators to monitor the reservoir through time. The principle behind seismic survey is reflective seismology, i.e. a generated shock / acoustic wave that travels into the earth, is reflected by the earths rock and returns to the surface where it is recorded and measured by a receiving device  a geophone. Shock waves are generated by either explosives, specialized vibro vehicles when done onshore, or airguns powered by a compressor in offshore applications.

By analyzing the time it takes for the seismic waves to travel between the rock formations and the surface engineers and sophisticated software allows the creation of subsurface maps. These maps provide an indication of where hydrocarbons may be, as well as providing details on the structural geology of the area explored. The degree of subsurface visual / graphical is a key consideration within the category and is largely dependent on the reservoirs stage in the lifecycle.

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Seismic could be offshore and onshore, 2D, 3D and 4D. The output of 2D seismic is a single / line graphical representation of the rock. 2D is used when collecting large areas of data and 3D survey is not economically viable. When the data is obtained using 3D seismic, it is displayed as a three-dimensional cube that can be sliced in various directions and angles, to allow further detailed analysis of the reservoir and rock formations. As such, added details helps to reduce the uncertainty 2D seismic surveys present. 4D seismic is a standard 3D survey with time interval as a 4th dimension. Comparing data over time (usually years) provides an understanding of the reservoirs behaviour and historical changes, and help to provide clarity on its future conditions and performance.


Seismic acquisition category could be divided into a segment consisting of several tiers:

  • SEISMIC DATA ACQUISITION
    • 2D- lower tier
    • 3D onshore - med tier
    • 3D / 4D offshore - higher tier 
      • Tower Streamer
      • OBC / OBN

In all seismic surveys accurate positioning is key to acquiring data. Without knowing the exact time and position from where the data originated, acquired information is of little use. Positioning is done using differential GPS (DGPS) to ensure precise positioning, as well as various software and offset data points.


When conducted onshore, a larger number of people and equipment are deployed to acquire the data. Onshore data acquisition is less sensitive to weather conditions compared to offshore operations. While in the onshore applications receivers / geophones are easily placed and positioned, the nature of offshore seismic presents a number of additional challenges. Offshore cables, known as streamers, are used to house the receivers and are set at distance intervals from each other.  The length of the streamers could reach 6-7 km (or more) depending on the survey location and depth. In 2D surveys only 1 streamer is used, whereas in 3D seismic as many as 12 may be used although it is most common to use between 6 and 8. There are different streamer configurations and towing techniques, each designed to cater for certain technical parameters. The survey area must be larger than the subsurface area being explored. 


Conducting seismic surveys in shallow water or transition zones, by far, is the most challenging application. Finding a vessel large enough to accommodate all required personnel and equipment, yet with a small enough draft to operate in the waters is a particular challenge. Using barges or shallow draft vessels reduces stability of the vessel, thus  increases inaccuracy / quality of acquired data. This may lead to selection of different equipment or a combination of instruments to conserve space, weight and provide more reliable data.

The methodology of survey largely remains the same, both marine and land. Predefined lines are set at appropriate spaces and lengths and each line is surveyed before moving to the next. 


2D seismic is a relatively low cost activity costing significantly less than both 3D and 4D seismic surveys.

Risks & Opportunities

The effective management of common risks and opportunities can have huge implications for the commercial and technical success of the category. Most common risks are:

  • Offshore Weather Window  Selecting the time of the year when to conduct a survey is critical. Calm weather will reduce the number of costly weather days, as well as reduce unwanted noise recorded by geophones that will affect the quality of data and subsequent interpretation. Where bad weather is encountered all underwater equipment must be recovered and redeployed. This can have a significant commercial impact depending on the length and number of streamers in operation. Within the Arabian / Persian Gulf from April to October weather is typically at its best. As such this period presents the best opportunity to mitigate this risk.
  • Vessel Selection and Availability With only 6-7 months of available good weather in the Arabian / Persian Gulf the most cost effective vessel selection may be limited due to demand. As such a trade of may be required between cost and vessel selection where a larger draft vessel may be brought in to cope with more adverse weather conditions. Long term visibility of survey programmes and good market management can help mitigate the risk and provide opportunity to take advantage cost effective vessels
  • Quality Control  Data accuracy is paramount in the operation and can add has the potential to add significant costs at a later date. Experienced QC/QA personnel representing the client onboard the vessel is a must have requirement.
  • Long-term Programme Visibility  short-term programmes add cost both in finding the most cost effective solution as well in the expense mobilization and demobilization of personnel and equipment. A long-term survey programme should be strived for, to benefit from the economies of scale in carrying out the operation.
  • Preliminary Data Processing  Technology now allows early data processing and analysis from the vessel. This capability allows adjustments / changes in the acquisition programme to take place, as data becomes available enhancing the accuracy of the data obtained and avoiding large costs of re-acquiring data.

Supply & Demand Dynamics

Demand

Demand for seismic survey services is driven by exploration activities around the world. More than 85% of the surveys are done during exploration and appraisal stage, with 4D seismic conducted during production stage, as fields mature. Spending wise, marine seismic contribute circa 60-70%, with the remaining being land acquisition. GCC represents less than 10% of global seismic survey spend.

With the current oil price environment the demand for seismic equipment dropped by around 70%, as well as significant decrease in survey services. It is expected that the demand will be limited through 2017 & 2018. Low oil prices place restraints upon riskier operations, typically exploration work, as more probable returns are sought. As such seismic survey services are expected to be in lower demand due to:

  • Brownfield projects presenting better investment returns (such as EOR)

  • The expense of exploration and appraisal activities with no guarantee of return

  • Marine seismic surveys are expected to suffer the worse due to its relative expense and additional risk

With onshore seismic survey activities presenting a lower financial burden it is expected that NOCs within the GCC will place greater emphasis on this during the coming years particularly, as they look to exploit the unconventional resources within the region. Largest land seismic projects are expected in KSA, UAE, Oman and Kuwait ( CGG company report)


Supply 

Both offshore and onshore seismic survey services have been dominant by major service companies such Western Geco (Schlumberger), CGG, PGS, Polarcus, Dolphin Geophysical, COSL and BGP. These companies control more than 90% of the offshore seismic, with first 3 being the dominant players. There are more than 80 vessels operating worldwide, with different capabilities and geographic location. Majority of the vessels are owned by Western Geco, CGG and PGS. The same companies are in control of 75% streamers capacity. CGG and Western Geco are the most asset heavy companies and owned most of its equipment and vessel / truck fleet, followed by PGS.

Due to cyclical demand nature in this segment, balancing supply against demand has always been a challenge. A common trend maintained by contractors in the segment to maintain a backlog to ensure high fleet utilization. In addition, fleet renewal and its timing is an issue for service providers. As of 2016, the number of new build vessels is far greater than the old vessels that will be taken out of the market. In addition, new generation vessels are more efficient, which means shooting more seismic over the same period of time when compared to older vessels. With bearish outlook for worldwide exploration activities, the overcapacity issue might be more evident. 

Key Players

Track record and experience of service companies, that is essential for operators, in higher tier market in particular, make it hard to enter for new companies. In certain applications, equipment is proprietary to companies and is not available to a wider supplier base. Those tools are part of competitive advantage of top service companies. 

External Scanning

The dominant feature of the seismic supply chain is the high level of competition amongst Suppliers. This competition is likely to worsen placing further downward pressure on prices (particularly offshore) as suppliers look to secure work in a low growth environment and cover the high operating costs. With few Buyers in the market (predominantly large NOCs) suppliers are unable to pressure prices upwards due to the threat of buyers switching easily.


Overall the power within the category is fairly well balanced although is likely to see it favour towards the buyer in the near future as lower revenues pressures the supply chain.



 
Supplier power is Medium
  • Many providers
  • No alternative for buyers 
  • Product differentiation
  • Can solve customer problem
  • GCC market is relatively small
 
New Entrants is Low
  • High CAPEX required 
  • Many  Players
  • Battle for market share
  • High exit barriers
  • Technological Advantage 
Competitive Rivalry
  • A competitive environment
  • Battle for market share
  • Technology differentiation
  • Multiple tier market
Buyer Power is Medium
  • Many providers
  • Spend is significant
  • Critical to buyer revenue
  • Availability of equipment and vessel is an issue
  • Demand  for services is going down 
 
Substitution
  • Drilling wells - costs significantly more
 

Portfolio Positioning

Seismic surveys are one of the key tools for operators in order to reduce exploration risks. Exploration presents significant profit risk to operators and thus the accuracy and quality of the data can both make and destroy operators bottom line. Technology is the key differentiator


  • STRATEGIC 


High
Low
High

Cost & Price Analysis

Price Analysis

As a result of increased exploration activities between 2011-2014, prices for seismic services have been showing as significant upward trend on global basis, as well as large backlogs. This segment is highly cyclical on demand side, as such service providers try to keep the capacity balanced and in times of high demand, prices are going up. Vessel overcapacity is a side effect of cyclical demand. In the near term (2017-2018) oil price slump will put pressure on services companies and manufacturers to reduce their prices. Downsizing efforts of service providers  to be able to operate profitably, did not produce sustainable results.

Additional price pressure on seismic acquisition originates from the extremely elastic supply, whereby cold stacked vessels could be easily and quickly put into operation, shall the demand go up. 


In addition, the region makes a huge difference. For example, the price of 1sq km of acquiring 3D data in the Arctic could reach US$16-17K, whereas in West Africa US$4-6K.  Day rates for a fully equipped and manned vessel are between US$ 90k-300K for 3D Vessels and US$25k-65K for 2D Vessels.

Below are the pricing options that are common in the industry.

  • A flat operational day rate for a fully equipped and manned vessel, with mob / demob charges. With mobilization fee being higher than the demobilisation fee. This approach is very favourable to contractors and requires the operator to take a full control of the operations to ensure it is done efficiently.
  • Rate per sq. km with standby rates and mob/demob charges. This pricing mechanism provides more clarity and encourages contractors to acquire data in a most effective and efficient way.  Depending on the location, survey complexity and technical requirements (spacing, depth, grid, streamer length and type), charges per square km could be:
    • Full fold square km
    • Square km 

Cost Analysis 
The majority of equipment and vessels used in the services is manufactured by 3rd parties or leased. Hence equipment is acquired based upon the expected future demand and utilization. Seismic survey requires highly skilled labour and such services are consistently in demand. Manpower represents a significant cost burden upon service companies. The main cost elements are:

  • Depreciation costs  has a direct impact on the prices, as purchased equipment is depreciated over various time periods. With cyclical demand for the services, this is one of the highest cost elements. 
  • Personnel Costs  highly volatile, seismic survey personnel is a very skilled job and lack of highly experienced personnel is always evident.
  • Idling  due to project based and weather dependant nature of the category, whereby acquisition equipment and vessel is not utilized throughout the year, the idling time is a large contributor to OPEX for seismic companies. 

Value Chain Analysis

Most of the seismic equipment is manufactured by 3rd parties, except Sercel.  Below are the major equipment suppliers.

  • Sercel ( CGG owned)  controls 70% share of land cable systems & 95% share in marine streamers 
  • ION / INOVA 
  • OYO Geospace / Geometrics
  • Mitcham 
  • Bolt technologies 

Vessels are built by various ship building companies around the world.

Total Cost of Ownership

  • Being efficient in 3D seismic, in particular offshore, the area covered in a period of time is the measure of efficiency. Unless technically not feasible, covering the area as wide as possible, hence towing many streamers, is a key differentiator and helps to determine the total cost. In addition, efficient collection of high quality seismic data and operational efficiency such as fuel consumption, vessel endurance and equipment deployment and recovery, play an important role.
  • Quality control at all times during data acquisition is vital. Hence, third part QA/QC on board the vessel or part of seismic crew  onshore is rquired and normally provide by client.
  • A decision on who is in charge of managing a project and to what extent, i.e.  outsource it completely vs. hire a fully equipped vessel / seismic crew and manage the process in-house. The decision and degree of operator participation may have a significant impact on survey time and cost. In some instances, programme design and planning and logistics arrangements may be better dealt by a contractor. Hiring a project management contractor to manage a seismic project is a common practise in many  parts of the world.

Strategy

Since seismic surveys add greater value to a company at lower cost than exploring by drilling, some operators may use this market condition and acquired data at much lower day rates. This may be evident in the GCC countries whereby NOCs are tapping into unconventional resources, gas in particular.

Unless technological or other constraints are present, potential options are:

Combine all Scope of Work  into one package, and conduct a competitive tender

  • Low demand, contractors arewilling to provide better  rates. 
  • In addition, up to 5 contractors available who can provide a complete scope, including processing.

Closely collaborate with CGG and WesternGeco to establish long-term agreements.

  • Sercel / CGG as a manufacturer,controls of 70%  share of land cable systems & 95% share in marine streamers. Most seismic contractors would buy equipment from Sercel. Their expertise and experience in GCC and data processing goes back many years

Revalidate the prices or conduct a new tender in 2019 ( or when exploration activities start to pickup).

  • Contractors will not be able to lock the prices for 5 years.
  • Split between low-demand time and high-demand time would provide more competitive prices.

If land seismic emphasis is on shale gas, carving out into a standalone package all land data acquisition might be a viable option, to be able to tap into expertise of NAM focused seismic companies and obtain more competitive rates. 

Unless a unique expertise is required in seismic processing, include in the acquisition package. 

A further understanding of estimated scope of work and its breakdown ( 3D vs. 2D v.s 4D, land vs. marine)is required to refine the options.

Technical Insights

  • Ocean Bottom Cables (OBC) and Ocean Bottom Nodes (OBN) are fairly new technologies using 3D seismic, whereby small automonyneous nodes or cable are placed at the seabed in a predefined layout. While OBC are only used during field production stage for reservoir monitoring purposes, OBN can be used in lieu of traditional 3D seismic when towed streamers are used.  OBN could be used in highly sensitive areas, transition zones, and close proximity to obstructions, deep water and many more.  The drawback of OBN is power supply, whereby batteries have to be replaced at certain time intervals, usually less than 60 days.
  • Onshore cable-less systems is a method that well works in sensitive environments and has much lower impact on environment when compared with other methods. It also needs less people and fewer supporting vehicles.