Do you know the value of your seismic assets? They can actually be a significant part of your companies net worth but are often passed over. The revenue generated from sales of your company’s seismic can be used for other projects and can be a source of revenue that your company did not anticipate.
Determining the value of seismic
One of the most common questions asked when selling something is “how much is it worth”? Buyers want the best price they can get, and sellers want the best value for their dollar. Laissez-faire factors of the free-market supply and demand facilitate this process. Some seismic sellers are firm on their pricing where others are more open to negotiations. Where does a company start if they want to determine the value of their seismic data, and how do they find the right price for market conditions? Why should a person bother to evaluate their seismic data?
Today’s marketplace is tumultuous to say the least. Management teams are faced with the difficult task of keeping shareholder confidence and maintaining company value in a low commodity market; as a Geoscientist, you can help by knowing the value of your seismic assets.
Pricing for Licensing Seismic
When pricing seismic data for selling a licensed copy, the sale price can be calculated using a percentage of the original AFE cost. Other factors used in determining the price include quality/availability of the data, vintage, fold, and location. At times land access is much more restricted than it previously was too. Trade seismic allows technical evaluations of areas of environmental sensitivity where there are restrictions from a government point of view as well as surface landowners for acquiring new data, not to mention a lower carbon footprint. Some companies set up pricing guidelines that reflect the general trends of meta-data in specific regions that are tied to acquisition parameters. Adjustments can be made to reflect the actual shooting costs of specific lines, and the outcome of that acquisition. This leads into QI or quality inspection. Noisy areas, data gaps, and notch filters are examples of characteristics that could warrant price adjustments. Larger volume purchases in the amount (km or km sq) of the data or monetary cost can also move price. Let’s not forget that ‘time is money’ quick access, as the data can be loaded onto your workstation in a matter of days vs months from new data.
If your company is actively licensing seismic data, the revenue it generates is an important item to management. The revenue generated can be used for a multitude of projects within the company and can be a source of revenue that your company did not anticipate. Communicating the value and potential revenue stream that you get from seismic should also be communicated with your Land and Acquisitions and Divestitures departments, as you can leverage this when you are doing transactions with other companies. Knowing the value of the seismic data can allow the data to be divested at market value and not just added as an afterthought.
In many industries, getting assets appraised from a third party is a standard practice. Professional valuations are formal processes, conducted by experts in their field. Using real estate as an example, a valuation can help determine the fair market value of a property. Municipalities regularly do appraisals to determine the tax-assessed value of a property and, as a result, how much individuals need to pay in taxes. Property assessment is a standardized and accepted practice. This type of professional appraisal provides the bank/ lender with the assurance that the price is correct and appropriate.
Businesses annually trust third-party advisors (accountants) like PriceWaterhouseCooper to evaluate and act as a quality control for their financials. A significant amount of financial rigor goes into these processes to help strengthen the confidence in both book value and company value. In the energy industry the value of seismic data is very significant, yet often is passed over. Companies should consider third-party valuations of their databases as part of their annual audits – as this will help boost company value… sometimes more than one might imagine. Calgary has well-respected data brokers who offer this service to their clientele. In determining the value of the data, there is the replacement value, the licensed copy value and the exploration value. There is an exponential cost savings to license data vs shooting data. Depending on the business, if you are a data aggregator your focus will be generally on the licensed copy of the data value. For those in the business of exploration and development the exploration value will often be the highest for a number of reasons:
- Evaluate drilling locations
- Good tool for reserve and resource estimations
- Continuation of PNG leases/licenses
- Reduce drilling risk of sinkholes and faults
- Reduction of stratigraphic well drilling
- Template key competitor wells
- Regional Evaluation / context respect to the regional depositional environment
- Target the azimuth of a horizontal well
- Improved GeoSteering
- Assessment tool for ‘triggered seismicity
- Help derisk and assess containment breaches
are some of a long list of benefits geoscience teams can glean from their exploration value.
A third-party review engagement is something corporations should be considering, using a procedure that is recognized as the standard methodology with their seismic database. The monetary value of seismic data is a combination of revenue that could be generated by licensing copies of the seismic to third parties, as well as the value inherent in the seismic because of its utility as an exploration tool. Having a third-party valuation of your seismic data ensures that it is properly recognized and valued as a company asset. It may be worth noting that a third-party valuation would give potential purchasers an idea of the financial liability associated with any spec data should a corporate transaction occur.
Don’t leave your geophysical data to chance;
understand what it is worth to maximize its value.
It could be a significant, unacknowledged asset that could help propel your company’s valuation and its value could allow you to do more projects. Make sure that you communicate that value to all departments in your company, so the asset can be leveraged accordingly.
About the Author(s)
Stephen Kotkas started his career in the geophysical sector in 2007, as a seismic data broker with Sigma Explorations after a career change from the Calgary Board of Education. Since then he has been an extremely involved volunteer for the CSEG in several roles including Director of Member Services, the CSEG Foundation Board, and University Student Outreach in a variety of roles and capacities. Helping to make the CSEG stronger and better, as well as working with other volunteers, has been a key element of Stephen’s ‘volunteer life.’
Outside of work, Stephen is passionate about amateur sport and outdoor pursuits, especially when his children are participating.
While playing varsity basketball for S.A.I.T., Joanne Poloway graduated with diplomas in Marketing and Management. She started at Sigma on a temporary summer job placement, and 29 years later she is still enjoying working in Calgary’s Energy industry and for Sigma.
Joanne is a member of the CSEG and was involved in the Women in Seismic Golf tournament for several years. She was recognized by the CSEG in 2014 for her work with the tournament and reaching the goal of over $100,000 donated to the Alberta Cancer Foundation on the tournament’s behalf. Joanne has also volunteered for the CGDMS in various roles and is currently the Secretary.
As well as industry volunteer time, Joanne was actively involved in both her son’s sports teams (football and soccer) as a manager and fundraiser. She also spent time on the School Council at All Saints High School from 2018-2021.