Last year's vicious competition among oil and gas operators due to high vessel usage and program demand has been replaced by an equally vicious seismic contractor scramble to keep vessels busy. Global seismic market demand is down about 20%, while the Gulf of Mexico is off over 30% from last year.
This decline is due to the soft oil market which is now beginning to revive. Low oil prices restrained cash flow to the oil companies. They responded by investing fewer dollars on exploration surveys. This general cash squeeze can be laid at the door of Asia for its financial collapse and the resulting cascade of problems across the globe.
While this is a disconcerting picture, the seismic industry has dug deep to survive bringing new tools and techniques to the market. Even more encouraging is the job the industry is doing in bringing high capacity, high efficiency vessels and processing to the market. Each wave of economic pressure transforms the seismic industry into a more effective oil-finding tool.
Lease sales
Oil companies bought many Gulf of Mexico leases over the last two years, especially deep water leases. This year, they have been tight-fisted with lease money. At the most recent Central Gulf Lease Sale 172, only 207 blocks received bids from 3,758 blocks offered. The industry shifted from buying trend acreage to a strategy of high-graded, targeted lease purchases.
Another interesting point from the sale was the shift back to shelf leases. According to the MMS, 105 leases were sold in water depths less than 200 meters, while in the deeper water beyond 800 meters, only 89 leases were sold. Independent companies continue to work their way into offshore operations. Arco's purchase of Shell's shelf properties is a recent example.
Significant numbers of leases need testing so there is plenty of work backlogged in company exploration departments. According to James K Dodson Co there are 1,398 undrilled primary term leases on the shelf (0 - 200 meters) while the deepwater (800+ meters) has 1,751 undrilled primary term leases (this count was made prior to Sale 172). This is quite a feast for the industry to work through. To paraphrase one source, it is a period of "digestion" for earlier leases and seismic programs.
Mergers
Most service companies, including the seismic industry, are distressed that the pool of customers has dropped due to merger activity. The Exxon-Mobil and BP-Amoco-Arco mergers reduced the potential for speculative seismic programs to be pre-sold to large players. Mergers among smaller players have reduced the buyer pool for multiple sales after new surveys are gathered. They also reduce the ultimate sales potential of new programs.
Another result is that there are fewer professionals to interpret the data already purchased. Major mergers have pooled assets and prospect files while reducing the headcount in organizations. Companies may overcome this by using project-based outsourcing, but only in cases where there is economic need and time pressure to evaluate a drilling or farmout decision. This pressure will not develop strongly until next year when a significant numbers of leases begin to expire. Thus fewer survey sales are expected short-term.
Price/costs/profits
Seismic data has become a commodity market. Older 3D surveys are just now entering the "vintage" category and plenty of recent surveys exist where the industry wants to explore. Prices of new programs have dropped as contractors sought to maintain cash flow by selling what they could.
Costs, however, are front-loaded and only dropped this year as the seismic vessel fleet utilization dropped. Thus, profits from 3D seismic have not met the expectations that many had for their work.
In addition, it is harder to assemble a group for a multi-client survey. Earlier surveys were often shot with 4 or 5 participants. Because of the tight money situation, groups of 10-12 are now required, making a program harder to piece together.
3D, 2D seismic
The major shift to interest in 3D surveys increased the need for regional 2D data sets. This sounds paradoxical, but for companies to build a deepwater leasehold position, they need to quickly evaluate large regions.
Two-dimensional seismic data filled this need over the last few years as the multi-client surveys extended out to and beyond the deepwater salt escarpment. As a result some seismic contractors consider the Gulf of Mexico "overfished." They say that enough 2D and 3D data exists to meet the industry's needs for up to three years. These contractors suggest that a step change in technology is needed before the level of spec data sales will expand again.
Adaptive changes
A step change is developing in three different forms: bin density, longer offsets, and processing intensity.
- Bin density: Just as 2D data moved from 6-fold to 12-fold and higher, 3D seismic is increasing the number of bins recorded by increasing the number of streamers towed and reducing their spacing. For a similar survey size, bin sizes are dropping while their number increases.
Ten years ago bin sizes were 50 meters by 50 meters or 37.5 meters by 50 meters. Surveys are now routinely collected with bins of 25 meters by 37.5 meters or 25 meters by 25 meters. Some bins are even gathered at 12.5 meters by 37.5 meters. This increasing bin density brings sharper images and more detail for the interpreter to use.
- Longer offsets: Most early 3D surveys were gathered using 2,000-3,000 meter streamers. Surveys are now routinely gathered with 4,000-6,000 meter streamers. The next step is to 8,000 meters streamers or longer. The reason is the need for a deeper look into the rocks and the possibility of capturing some converted wave information. Also, a deeper water column requires a longer streamer to catch the returning acoustic signals.
- Processing intensity: Seismic data contractors are beginning to take advantage of their earlier 3D data sets. They have built large contiguous data volumes over the past 10 years using consistent survey schemes. Economies of scale now permit prestack time migration for AVO (amplitude vs offset) analysis to be applied across the complete data volume.
The larger the volume being processed, the smaller is the incremental cost to process the volume on a bin basis. By adding this processing value and offering it to the market on a spec basis, the contractors give smaller companies access to effective risk-assessment tools. Such tools were only available to the majors just a short time back.
Positive mental attitude
One very encouraging sign is the expanding planning horizon in the exploration manager's mind. With the rising oil price, managers can begin planning six months to one year ahead. Quarterly, and in some cases weekly, plans can now be relaxed a bit. The pressure to closely monitor budgeted costs is easing, allowing them the flexibility to seek future surveys that could not be considered before.
Successes like Tanzanite have shown that large above-salt prospects still exist, so subsalt exploration is not the only hope for smaller organizations seeking company-maker fields.
This does not mean that subsalt exploration has stopped - far from it. The trend is an active area of exploration. The costs of actual drilling have kept the lid on the number of tests during the past year. This should change as company coffers are refilled by rising crude prices.
Competition
The Gulf of Mexico continues to be a most competitive environment. Seismic Contractors routinely "bet on the come," gambling that they can shoot an area and get it sold before their competition can. Oral agreements to buy data can be enough for companies to hire a vessel and begin shooting. This long-standing attitude has been tempered over the past year, but it continues to simmer.
Most contractors expect the second half of 1999 to bring renewed data sales. Until then they are "hunkered down" waiting for the next surge of industry activity.
Editor's Note: There are other seismic contractors with 3D seismic in the US Gulf of Mexico that are not represented on the maps included with this article. Please contact them directly for survey details.
