Seismic vessel market continues upward swing

March 1, 2006
Vessel demand spurs record backlogs

Vessel demand spurs record backlogs

Ted Moon, Technology Editor

The growing optimism that permeated the seismic vessel market this time last year continues into 2006, but it is tempered with experience and the lingering memory of the industry’s challenges in the late 1990s. The fleet reductions that were so prevalent in the period 2000-2004 have ebbed to the point that many companies maintained their fleet size from last year, or have begun adding to their fleet. This has translated into one of the busiest years on record for seismic vessels, with record-breaking backlogs and seismic demand expected to outstrip vessel supply in 2006 around the world.

Different capabilities, different strategies

“We are always cautious about the future,” says Tim Wells, president and COO of Veritas DGC. Due to the precipitous fall-off of the price of oil in 1999 and the subsequent fallout in the seismic vessel market, many companies like Veritas made the decision to not add significantly to their vessel fleet.

Wells says his company’s strategy has been to stay lean but to keep advancing technologically.

“One way of adding vessel capacity is to add capabilities to the existing fleet,” he says, which is exactly what Veritas has done. Of its six seismic vessels, four are large 3D multi-streamers. The company recently said it will add another new-build, 12-streamer vessel to its roster starting in February 2007.

Veritas has positioned itself to compete in a niche market of vessels capable of towing more than eight streamers, a market that also includes companies such as CGG Marine, Fugro-Geoteam AS, PGS Marine Geophysical, and Western Geco. Wells feels very good about the large multi-streamer market in 2006 and 2007, and he is not alone in this assessment.

WesternGeco’s 2D/3D deepwater seismic vessel the Geco Eagle.
Click here to enlarge image

In a report prepared for the investment community on its 4Q 2005 results, Petroleum Geo-Services ASA (PGS) estimated a global increase in total streamers used of at least 15% in 2006 over 2005, and an increase of at least 30% in 2007 over 2005. PGS is planning a streamer upgrade program to capitalize on this capacity upturn by increasing their streamer count by 15% over 2005.

As John Greenway, vice president of sales and marketing for PGS Marine Geophysical explains, increasing streamer counts on vessels “is a very fast and relatively cheap way to increase capacity. We also converted a bottom cable crew to streamer operations this year since we see conventional streamer demand much stronger than OBC demand in the near to medium term at least.”

Not all companies are taking a wait-and-see stance on adding new vessels to their fleet. On the contrary, several vessels have been built or converted since the 2005 survey. Of the 125 seismic vessels included in this year’s survey, eight are new additions to the market and four have been upgraded. This is a contrast to last year’s survey, in which no new or reconverted vessels were added.

Click here to view the Vessel Survey in pdf.

Western Geco’s dramatic reduction in its vessel fleet from 51 vessels in 2004 to just 19 in 2005 has turned around slightly this year, as the company has added 2 new vessels to its fleet. This trend will continue into the near future.

“There are currently probably close to a dozen vessels (both 2D and 3D) that are being planned, rigged/converted or newly built around the world, scheduled to be released within the nearest 3-18 months,” says Kjell Karlsson, vice president marketing and sales, North and South America, of CGG Offshore. CGG has added significantly to its fleet since last year with the acquisition of Norwegian companies Exploration Resources and MultiWave. The acquisition added seven vessels to CGGs fleet, now comprising a total of 13 seismic vessels (nine 3D and four 2D vessels).

PGS’s Greenway expects that this planned vessel expansion will ease the current capacity crunch, but it may be somewhat offset by the age of the total fleet.

“There are many active streamer vessels in our industry which are quite old and getting toward the end of their economic lives,” he says, “so these older vessels, representing around 25% of the current fleet, will have to be retired over the next few years.”

Backlogs inevitable

If you are looking to commission a seismic survey, the general consensus is, get your order in now and expect to wait a while. In perhaps the biggest change from last year, the seismic vessel market is experiencing unprecedented backlogs for service, spurred, not surprisingly, by sustained high prices of oil and gas.

CGG’s Karlsson says that “industry’s current backlog of 3D/4D vessels is ranging 10 to 18 months, pending size, capacity and capability of the particular vessel. This is a major change from what we had in hand or even would forecast this time last year!”

The last quarter of 2005 saw a significant jump in backlog orders compared to the end of the 3Q 2005. For example, PGS reported that its backlog in dollar terms, including both contract and multi-client seismic, was $365 million at the end of December 2005 versus $297 million at the end of September 2005.

While the 2D market is strong and experiencing a backlog, the longest backlog situations are reserved for the 3D market. This is understandable, as customers want to avail of newer and more advanced technologies to obtain a fuller data set on more complex reservoirs.

International boundaries

Another major change in the seismic vessel market from years past is that acquisition demand is not limited to one or even a few geographic regions.

“In previous years you had a build-up where exploration work would pick up in one part of the world before another,” says Wells. “This year, we’re busy in every part of the world.”

The so-called Golden Triangle (Gulf of Mexico, West Africa, Brazil) has seen a resurgence in seismic vessel demand over the past year. West African demand is growing more slowly, but offshore Brazil and the GoM in particular are seeing demand surge.

Gardline’s 2D/3D seismic vessel the Sea Explorer.
Click here to enlarge image

The demand for quick turn-around of data is bringing about record-setting acquisitions, such as the recent announcement by PGS that itsRamform Valiant acquired over 2,300 sq km of 3D seismic offshore Brazil during December 2005. The company believes that its acquisition in the Camamu Almada basin is a new world record for any seismic vessel.

The GoM is a busy sector for many companies due partly to last year’s devastating hurricane season and partly to upcoming deepwater licensing rounds. An engineer at one small independent seismic company that operates exclusively in the GoM region reported that his company is seeing more interest on the shelf, which he expects to continue if gas prices remain high.

While he currently sees only moderate interest in upcoming GoM lease sales, others predict a dramatic up tick in the next 2-3 years. This is due in large part to the fact that many 10-year licenses are expiring in the period 2006-2008. Data compiled by the James K. Dodson Company shows that during this time period a total of 2,967 leases will expire. Of these, 1,748 (59%) are in greater than 2,999 ft of water.

The fact that so many GoM leases will expire in the next three years, combined with key advances in acquisition techniques, is driving many companies to acquire both new multi-client and proprietary data. This is a change in the region, because as Wells explains, “Prior to this past year, work in the GoM was primarily multi-client in nature.”

“Companies, supermajors in particular, that put themselves in a good position with leases in the 90’s are concerned about the possibility of losing them in the next couple of years, so they are keen to evaluate that acreage as soon as possible,” he said.

Another region that continues to see booming demand is Asia-Pacific, and customers of all types are vying for vessels. National oil companies are very active in the region, as evidenced by India’s ONGC. In the past year, ONGC has employed several vessels for long-term, large acreage acquisitions.

CGG has been busy offshore India, completing a 13,000-sq-km contract last season with ONGC for 19 marine surveys along the entire Indian west coast and a portion of the east coast. Four of CGG’s vessels were employed in the program and deployed 4- to 10-streamer configurations over a range of geological targets and water depths.

CGG followed this with a more detailed 3D east coast study for ONGC, covering an area of 8,800 sq km and which is set to finish in May 2006. CGG employed three 3D vessels for this work, each equipped with full onboard processing and equipped with CGG’s proprietary Geocluster software.

The mature North Sea will also continue to be a busy region, which is evidenced in part by the interest generated by Norway’s recent 19th licensing round, in which 24 companies applied for 64 blocks in the Barents Sea and the Norwegian Sea. Expect another surge in vessel demand in that region once the licenses are awarded toward the end of 1Q 2006.

Companies such as Fugro-Geoteam AS are preparing for the expected increase in the area. The company announced in October of last year that it signed a long-term charter agreement with Norwegian company Rieber Shipping ASA for the vesselPolar King, which will be converted for 3D seismic and have the capability to tow 8 to 10 long offset streamers. Fugro did not include this vessel on their 2006 roster for this survey, but it is expected to deploy by May 2006.

Rising costs, rising rates

Another realty that seismic vessel owners and operators face is that of rising operating costs. The increased price of fuel from last year is certainly one fact that the industry is facing, but there are increased costs that have to do with the booming worldwide vessel demand.

Crew availability is extremely tight in most regions, and as a consequence personnel rates have increased from last year, a 20% rate increase by some estimates in some regions. There is also little to no slack in the availability of supply vessels, which has caused a rate increase of as much as 50% in certain regions, according to Wells.

“The cost of chartering a vessel has also gone up by at least 50%, which is dramatically up from historical levels,” he added.

Seismic vessel providers have had no choice but to increase their rates to offset these rising costs, but with mixed results. A seismic vessel operator who wished to remain anonymous said that his customers “want bigger and better, however they want you to do this at last year’s prices. Most of the other customers are price driven and seem to care little about the size or type of equipment, and mostly go with the lowest bidder.”

PGS’ Greenway concedes that market rates are quite high now compared to previous years, but “we need these kinds of earnings to be able to finance the fleet expansion and vessel replacement that the market requires.”

Further advances

“Companies are interested in acquiring new seismic with better techniques, better technology,” says Veritas’ Wells. To that end, companies are differentiating themselves by upgrading to new technology that can successfully address challenges like imaging under salt and basalt formations in deepwater reservoirs.

Wide-azimuth acquisition techniques, in which a more defined view of subsurface geology is afforded by precisely combining seismic signals from multiple 3D vessels, will become more prevalent.

“This is especially true as customers want to create new and better data in older leases,” says Wells. He says that “wide-azimuth data may also be used as a baseline for future 4D studies, allowing a company to infill 4D datasets to obtain better data.”

Advances in seismic acquisition techniques are spurring advances in other areas as well. Larger seismic vessel companies that have the capability of analyzing and processing their data have improved their imaging techniques to match the improved acquisition techniques.

Advances such as these will become increasingly important as E&P companies find new fields with deeper and more complex geologies in deeper waters. All indications are that the seismic vessel community is ready and willing to meet these ongoing challenges, and they will continue to enjoy a fast-paced, competitive and very busy operating arena throughout 2006 and beyond.