SEISMIC ECONOMICS: Seismic market-share leader focusing on "bleeding" market
Problem: proprietary surveys at multi-client prices
Seismic data has inherent value, whether the client takes a lease or not. It is important for clients to understand the value seismic brings, regardless of whether or not they drill for oil or gas.
Jim White, Vice President of Multi-Client Services for WesternGeco, was inter-viewed by Victor Schmidt, Offshore's Exploration Editor, during the AAPG annual conference in Denver, Colorado, in June.
Offshore: How is the WesternGeco joint venture developing?
White: WesternGeco has quickly become fully operational as one unified company, and our integration process has gone very well. We have a lot of focus on where we are heading. We have a core group of individuals, former heritage from the two companies, that are leading us. It is exciting to see where we are heading.
What is discouraging is the lack of activity on the services side of the business, especially proprietary acquisition and processing. The effect is worldwide and there is still too much capacity in the marketplace. We are not in a position to add new crews until our existing crews are fully working at prices that are attractive and profitable.
Offshore: What is your new corporate structure?
White: We have a new four-tier, product-line structure: marine acquisition, land acquisition, data processing, and multi-client services with a vice president in charge of each product line. Each product line is managed on a worldwide basis.
Offshore: Since WesternGeco is now the largest seismic contractor, how do you intend to lead?
White: As the market-share leader, we want to set the tone for the way we run our business. Whether our competitors fall in place is up to them. We want to continue as the market leader, and to do that we need to show that we are running a profitable business. We need to get away from the "bleeding" market of the past.
Offshore: Has WesternGeco decided on a strategy?
White: The best strategy is to examine our cost structure and drive that down. We need to be cautious with multi-client deals. I think we have done a good job so far. We need to continue to educate our clients about the real costs and require appropriate prices. Sometimes we will have to tell a client that we don't have a crew available at a particular price level.
Offshore: Are long term service contracts a solution?
White: We have come full circle. Twenty years ago, the client took most or all the risk and we provided service with the upside coming in a long-term contract. Contracts have since migrated to a turnkey rate where we took most of the risk and the client took very little risk, but our upside was good. Now we have (short) term contracts on a turnkey rate. It is difficult to operate the crews on a turnkey basis. Multi-client data has value whether you drill a well or not. Seismic data has inherent value, whether the client takes a lease or not. It is important for clients to understand the value seismic brings, regardless of whether or not they drill for oil or gas.
Offshore: What about equipment?
White: Activity is not that good and even some new equipment is idle. There is some optimism from our clients that spending levels will grow later in the year. We may see some of that in the third quarter, but it hasn't yet appeared. It is discouraging, given that the price of oil and gas has been stable and higher over the last year. We know we are normally a lagging element in the services cycle. But this is usually a 6-8 month lag - not the 18 months we are currently experiencing. We could miss this cycle entirely.
Offshore: Is there any special reason for this?
White: We feel that the oil companies have ramped-down their personnel counts to the point that they do not have the people to work the data. There were strong data sales from 1997 to 1999, so the companies are saturated with seismic data for their staffing levels. They are too thin.
Offshore: Is this personnel problem wider than just the oil companies?
White: They are facing an issue that we will be facing sometime in the near future - finding experienced personnel. We are going to try to ramp-up to meet growing activity, if it occurs, but we have no place to turn for people.
We do have a problem ahead of us. A lot of our good people left the industry due to the cyclical nature of the business.
Offshore: How does speculative seismic fit into this picture?
White: Multi-client seismic is not the cure-all for keeping crews together. We don't shoot multi-client surveys to keep crews busy. We shoot multi-client when it makes sound business sense. We are clearly focused on where we want to be. The Gulf of Mexico has been our bread and butter and our saving grace for quite some time. There is no reason it can't continue to be so.
There is a financial model used in the Gulf of Mexico for multi-client data that doesn't fit the model in the foreign environment, whether you are talking Brazil, Eastern Canada, West Africa, or the North Sea. The block sizes in those areas are too big and the number of players is too small. In the Gulf of Mexico, there are about 250 clients; in Brazil,West Africa, and off Eastern Canada, that number has diminished to less than 20 clients (in each area).
WesternGeco's activity in the foreign arena has been tempered recently because we re-evaluated those models to see if they would fit financially. We don't do a program unless we scrutinize the numbers to make sure that we are going to get some return on the investment. In many ways, we have supplied our clients with a lot of proprietary surveys at multi-client prices, and that is just not right. It is not good for us and it is not good for the business. But, we are at fault.
Offshore: So the competition in the Gulf of Mexico is a good thing?
White: We like the model in the Gulf of Mexico. We like the block size, the number of clients. Multi-client surveys level the playing field for smaller companies. By shooting multi-client, we allow small independents to gain access to hi-tech information and compete with the majors. We welcome the opportunity to work with the independents. They are very aggressive in the way they approach the business. The majors have combined into mega-majors and have spun- off a lot of marginal properties that the independents bought up. The opportunities for us to deal with these guys are tremendous.
Offshore: How are new technologies being integrated?
White: That is one of the things that will carry us into the future. Our Q-Marine has been successful up to this point. We did a multi-client survey in the Gulf of Mexico and have since moved the system to the North Sea for some proprietary work.
Offshore: Has the Q-system repeatability been used yet?
White: Yes, but not in a full survey. We haven't done that yet, but the steerable cable will certainly allow for it. All the mechanisms are in place and are now being utilized in the North Sea. It will take some processing and experience to know the full extent of the technology's effectiveness. It has been exciting.
Offshore: Will this lead to more 4D surveys?
White: Offshore application of 4D seismic has been limited due to the cost. Most projects are onshore at present. Some oil companies will focus on 4D seismic, as they look at the reservoir to maximize the potential. Both 4D and 4C are going to be part of that maximizing process. What is exciting about "Q" is that we will be able to provide a level of service that our competitors can't.
Offshore: Are there any new developments with data sales?
White: We don't sell data - we sell licenses to our multi-client data sets. This difference is lost on many of our clients to the point that they talk about buying data. This becomes a major issue when there are mergers and acquisitions. We need to educate our clients better on this point, so I'm glad you asked the question.
Offshore: Is oil and gas company pressure for low survey prices degrading people and service?
White: It is a continual problem; we had it in the last downturn. Our clients fail to understand that running a seismic crew is not something that you can start and stop. You have to build it and mold the individuals in the crew to get the experience level up. It takes up to eight months to train and develop a new crew. The technology today is solid as far as the sensors are concerned, but it takes a team to coordinate it. If something goes wrong with the crew, we can lose in one month what we have gained over the previous year.
Offshore: Where do you see continued growth?
White: The North Sea and Gulf of Mexico are our most active areas at present. We have had a very successful 2D and 3D seismic program off Angola and that 3D seismic program has a lot of growth yet to occur. A new licensing round near the end of this year should help. Other areas of activity include Brazil (mostly 2D), Eastern Canada, and Southeast Asia, including the Northwest Shelf of Australia. We are trying to be creative, so that when we put deals together, we share in some of the upside that seismic brings. It gives us a better opportunity when we work in areas with fewer clients.
Offshore: What about the deep prospectivity of the Gulf of Mexico Shelf?
White: It is exciting for us to have an asset, like we have, that covers the shelf. It is up to us to enhance that asset to be able to see those deeper targets. We are reprocessing the Mega Survey in the Gulf of Mexico to better image the salt, using the long offset data (8,000 meters) to meet those expectations for our clients. Our separate multi-client group will manage this new asset.
The Gulf of Mexico will still be a very active place for us over the next 5-10 years, both in acquisition and in processing. By leveling the playing field, we are going to open up opportunities, not just for the majors, but for all the independents playing on the shelf.
Offshore: Will we see more multi-component (4C) surveys?
White: I think 4C is going to have a tremendous influence on activity and success of the Gulf of Mexico in the near future. It is where 3D was in its infancy, and unfortunately the cost can get high. Some of this can be addressed by technology, but we don't want to get into a commodity situation again.
Offshore: Is 4C more of a reservoir modeling tool?
White: Reservoir characterization is what WesternGeco is moving toward. A lot of our revenue is coming from the production side and we are dealing with more production personnel. We see the need moving toward detailing the reservoir.
Offshore: How is this evolving?
White: We see both in-house interpretation and outsourcing. We have been able to provide some of that to companies that requested it. We have to be careful about crossing over that gray area that would put us in direct competition with our clients. We do provide interpretation for our clients on a regional basis, usually on our own data.
For depth imaging there is a lot of interpretation required when building the velocity models. A lot of our clients do that on their own. They come to us with their interpretation, and we use it in the specialized processing of the 3D data. We do have our own interpretation group (Seismic Reservoir Services) that provides velocity interpretation among other things. We are providing that service on the multi-client side. We take our assets, build those models, and provide finalized depth-imaged products to clients.