CAGC Column

Geophysically speaking – The State of Seismic

The topic of the day – whispered quietly in the hallways – but with great fear in the public eye. These are excerpts from qualified experts in the North American industry in an effort to provide a balanced presentation. The solutions must come from within our own businesses – we must value ourselves before others will value us. And so the dialogue begins.

From Banc of America’s September 6th Research Brief – “A Seismic Dilemma – Seismic Companies’ Unsustainable Business Model”:

“The seismic industry has been financing R&D and technology development for their major oil company clients, putting their balance sheets at risk for clients with little loyalty or recent interest in buying. The seismic industry has to quit financing its clients. It has to focus on returns on capital. Period. The “need to be liked” cannot be a viable business model for the industry.”

From the IAGC, Houston, Texas, May 8, 2002 – “IAGC Takes First Steps to Address Commercial Issues”:

”Developments in seismic technology are widely regarded as some of the most important contributions to the improvement in exploration economics over the last decade. These developments are a result of years of effort and millions of dollars invested in research and development, yet financially, the geophysical industry has been one of the worst performing sectors of the oil and gas service industry, “ said IAGC President Chip Gill. “As an industry we have been a vast consumer of capital that has been largely unsuccessful in capturing a reasonable value for the technology that we develop and the other benefits, such as nonexclusive data libraries, that we bring in reducing exploration risk for our customers,” added Gill. “A financially healthy geophysical industry is essential to the E&P industry as a whole,” according to Gill, “yet for each of the last six years, the geophysical industry has delivered negative cash flows.”

From the Daily Oil Bulletin, August 26, 2002 – “Doom And Gloom Envelopes Geophysical Sector”:

“Geophysical companies may disagree as to why, but few would argue activity levels this year are down sharply from the highs of a year ago, idling crews and creating downward pressure on pricing. “It’s down I would say well over 50% from last year. After the winter season it just tapered right off,” said WesternGeco’s Lloyd Whelan, manager, Canada South. “I’ve been working in this business over 30 years and I’ve never seen it this slow. From the large [companies] like WesternGeco down to the small companies, everybody is pretty much affected.”

From the Daily Oil Bulletin, September 24, 2002 – “Prolonged Slump Putting Geophysical Sector At Risk”:

"...seismic industry, with the technology to dramatically improve prospect quality, is on the verge of bankruptcy. The reasons for the disconnect are not readily obvious. The average age of the geoscientist in the oil business is 47-48 years. Imagine a technology company where the average age of the <……..> scientists, was that old. And few geoscience programs at universities have expanded considering the volatility in the industry over the past fifteen years.”

I close with these comments – The challenge is to engage others in the discussion. It is time to spread the word and enter the debate. Each of us must assume responsibility for a small piece of the problem and work towards creating a new attitude for all those engaged in the business of seismic and in particular in creating value in the minds of the clients of the seismic industry.

Lest there should be any doubt. From the Daily Oil Bulletin, October 16, 2002 – “WesternGeco Closing Land Seismic Operations”:

“This morning, Calgary-based Scott Totten, the company’s Canada land operations manager, confirmed WesternGeco will shut its land seismic operations in the United States and Canada. Lack of profitability is behind the move. “We cannot be profitable here with the way the pricing is,” Totten said. “We’ve put a lot of money, millions, into research and development, and that obviously drives our costs up above somebody like a local seismic company that doesn’t have any R&D or (our) overhead. And we’re not getting paid for that.” He said WesternGeco management made a decision to discontinue operations in areas of the world that are no longer profitable. The current plan is to complete the closure by the end of December.”

In the upcoming months we’ll use this column to continue work on building closer ties between the CSEG & CAGC. Next month I will talk about the evolution of the geophysicist – the disconnect with the field – the lack of intimacy with the data. Stay tuned.

From the Thursday Files

If you pick up a starving dog and make him prosperous, he will not bite you. This is the principal difference between a dog and a man.
– Mark Twain