Seismic survey is a key tool an oil company would use when exploring for hydrocarbons. Not only does it increase the exploration success thus reducing risk, it allows operators to monitor the reservoir through time. The principle behind the seismic survey is reflective seismology, i.e. a generated shock/acoustic wave that travels into the earth, is reflected by the earths rock and returns to the surface where it is recorded and measured by a receiving device a geophone. Shock waves are generated by either explosives, specialized vibro vehicles when done onshore, or airguns powered by a compressor in offshore applications.
By analyzing the time it takes for the seismic waves to travel between the rock formations and the surface engineers and sophisticated software allows the creation of subsurface maps. These maps provide an indication of where hydrocarbons may be, as well as providing details on the structural geology of the area explored. The degree of subsurface visual/graphical is a key consideration within the category and is largely dependent on the reservoirs stage in the lifecycle.
Seismic could be offshore and onshore, 2D, 3D and 4D. The output of 2D seismic is a single / line graphical representation of the rock. 2D is used when collecting large areas of data and 3D survey is not economically viable. When the data is obtained using 3D seismic, it is displayed as a three-dimensional cube that can be sliced in various directions and angles, to allow further detailed analysis of the reservoir and rock formations. As such, added details helps to reduce the uncertainty 2D seismic surveys present. 4D seismic is a standard 3D survey with a time interval as a 4th dimension. Comparing data over time (usually years) provides an understanding of the reservoir's behaviour and historical changes, and help to provide clarity on its future conditions and performance.
Seismic acquisition category could be divided into a segment consisting of several tiers:
In all seismic surveys, accurate positioning is key to acquiring data. Without knowing the exact time and position from where the data originated, the acquired information is of little use. Positioning is done using differential GPS (DGPS) to ensure precise positioning, as well as various software and offset data points.
When conducted onshore, a larger number of people and equipment are deployed to acquire the data. Onshore data acquisition is less sensitive to weather conditions compared to offshore operations. While in the onshore applications receivers/geophones are easily placed and positioned, the nature of offshore seismic presents a number of additional challenges. Offshore cables, known as streamers, are used to house the receivers and are set at distance intervals from each other. The length of the streamers could reach 6-7 km (or more) depending on the survey location and depth. In 2D surveys, only 1 streamer is used, whereas in 3D seismic as many as 12 may be used although it is most common to use between 6 and 8. There are different streamer configurations and towing techniques, each designed to cater for certain technical parameters. The survey area must be larger than the subsurface area being explored.
Conducting seismic surveys in shallow water or transition zones, by far, is the most challenging application. Finding a vessel large enough to accommodate all required personnel and equipment, yet with a small, enough draft to operate in the waters is a particular challenge. Using barges or shallow-draft vessels reduces the stability of the vessel, thus increases the inaccuracy/quality of acquired data. This may lead to the selection of different equipment or a combination of instruments to conserve space, weight and provide more reliable data.
The methodology of the survey largely remains the same, both marine and land. Predefined lines are set at appropriate spaces and lengths and each line is surveyed before moving to the next.
2D seismic is a relatively low-cost activity costing significantly less than both 3D and 4D seismic surveys.
Risks & Opportunities
Risks & Opportunities
The effective management of common risks and opportunities can have huge implications for the commercial and technical success of the category. Most common risks are:
- Offshore Weather Window Selecting the time of the year when to conduct a survey is critical. Calm weather will reduce the number of costly weather days, as well as reduce unwanted noise recorded by geophones that will affect the quality of data and subsequent interpretation. Where bad weather is encountered all underwater equipment must be recovered and redeployed. This can have a significant commercial impact depending on the length and number of streamers in operation. Within the Arabian / Persian Gulf from April to October weather is typically at its best. As such this period presents the best opportunity to mitigate this risk.
- Vessel Selection and Availability With only 6-7 months of available good weather in the Arabian / Persian Gulf the most cost-effective vessel selection may be limited due to demand. As such trade of may be required between cost and vessel selection where a larger draft vessel may be brought in to cope with more adverse weather conditions. Long term visibility of survey programmes and good market management can help mitigate the risk and provide an opportunity to take advantage of cost-effective vessels
- Quality Control Data accuracy is paramount in the operation and can add has the potential to add significant costs at a later date. Experienced QC/QA personnel representing the client onboard the vessel is a must-have requirement.
- Long-term Programme Visibility short-term programmes add cost both in finding the most cost-effective solution as well in the expense mobilization and demobilization of personnel and equipment. A long-term survey programme should be strived for, to benefit from the economies of scale in carrying out the operation.
- Preliminary Data Processing Technology now allows early data processing and analysis from the vessel. This capability allows adjustments/changes in the acquisition programme to take place, as data becomes available enhancing the accuracy of the data obtained and avoiding large costs of re-acquiring data.
Supply & Demand Dynamics
Supply & Demand Dynamics
Demand for seismic survey services is driven by exploration activities around the world. More than 85% of the surveys are done during the exploration and appraisal stage, with 4D seismic conducted during the production stage, as fields mature. Spending wise, marine seismic contribute circa 60-70%, with the remaining being a land acquisition. GCC represents less than 10% of global seismic survey spend.
With the recent oil price environment, the demand for seismic equipment dropped by around 70%, as well as a significant decrease in survey services. Yet, the demand may show some signs of recovery in 2021. In Q1 2020, many contractors reported a significant increase in tender activities ( up to 30% increase compared to 2017) and expected higher activity in OBN seismic jobs in 2020. However, in Q2 2020, companies report significant drop-in activities in 2020, which in most cases postponed to 2021.
Due to cyclical demand nature in this segment, balancing supply against demand has always been a challenge. A common trend maintained by contractors in the segment to maintain a backlog to ensure high fleet utilization. In addition, fleet renewal and its timing is an issue for service providers. As of early 2020, the number of new-build vessels was greater than the old vessels that will be taken out of the market. In addition, new generation vessels are more efficient, which means shooting more seismic over the same period of time when compared to older vessels. With the bearish outlook for worldwide exploration activities, the overcapacity issue might still be evident.
Vessel fleet utilization seems to be improving for some companies, while remains low for others. On average the utilization levels around c. 50-65% ( as of Q3 2020), which is significantly lower of c. 80% in Q4 2019 and Q1 2020. In addition, some expect the capxcpti to shrink as well, by up to 15 vessels, which may be increased again by summer 2021.
Both offshore and onshore seismic survey services have been dominant by major service companies such as ShearWater / Western Geco, CGG, PGS, Polarcus, COSL and BGP. These companies control more than 90% of the offshore seismic, with the first 3 being the dominant players. As of Q2 2020, there are around 20 active high-end seismic vessels operating worldwide, down from circa 140 in 2013, with different capabilities and geographic location. Majority of the vessels are owned by ShearWater / Western Geco and PGS. The same companies and CGG are in control circa 75% of streamers capacity globally.
Below the latest global seismic vessel fleet by type and owners ( as of Q3 2020).
|Vessel Name||Vessel Owner / Operator||Streamer Capacity||Status|
|Polar Duches||Shear Water||12||Active|
|Polar Duke||Shear Water||12||Active|
|Polar Empress||Shear Water||22||Active|
|Polar Marquis||Shear Water||16||Active|
|Amazon Conquerer||Shear Water||18||Active|
|Amazon Warrior||Shear Water||18||Active|
|WG Amundsen||Shear Water||18||Active|
|WG Vespucci||Shear Water||12||Active|
|WG Cook||Shear Water||12||Active|
|WG Columbus||Shear Water||12||Active|
|SW Eagle||Shear Water||4+||Active|
|Western Trident||Shear Water||16||Active|
|Oceanic Sirius||Shear Water||20||Active|
|Geo Coral||Shear Water||16||Active|
|Geo Carribean||Shear Water||16||Active|
|SW Diamond||Shear Water||2D / Source vessel||Active|
|SW Emerald||Shear Water||2D / Source vessel||Active|
|SW Tasman||Shear Water||12||Active|
|Ocean Challenger||Shear Water||Active|
|BGP Explorer||BGP||2D / Source vessel||Active|
|BGPChallenger||BGP||2D / Source vessel||Active|
|DONGFANG KAN TAN NO.1||BGP||2D / Source vessel||Active|
|DONGFANG KAN TAN NO.2||BGP||2D / Source vessel||Active|
|Dong Fang Ming Zhu||COSL||4||Active|
|Eagle Explorer||SeaBird Exploration||2D / Source vessel||Active|
|Geo Barentz||SeaBird Exploration||2D /3D/Source Ves||Active|
|Nordic Explorer||SeaBird Exploration||2D /3D/Source Ves||Active|
|Voyager Explorer||SeaBird Exploration||2D / Source vessel||Active|
|Fulmar Explorer||SeaBird Exploration||12||Active|
|Petrel Explorer||SeaBird Exploration||Survey vessel||Active|
|Akademik Lazarev||SMNG / RosGeo||12||Active|
|Akademik Nemchinov||SMNG / RosGeo||4||Active|
|Akademik Nametkin||SMNG / RosGeo||12||Active|
|Professor Rjabinkin||SMNG / RosGeo||2D / Source vessel||Active|
|Akademik Primakov||SMNG / RosGeo||12||Active|
The dominant feature of the seismic supply chain is the high level of competition amongst Suppliers. This competition is likely to stay, placing further downward pressure on prices (particularly offshore) as suppliers look to secure work in a low growth environment and cover the high operating costs. With few Buyers in the market (predominantly large NOCs) suppliers are unable to pressure prices upwards due to the threat of buyers switching easily.
Cost & Price Analysis
Cost & Price Analysis
As a result of increased exploration activities between 2011-2014, prices for seismic services have been showing a significant upward trend on a global basis, as well as large backlogs, with price peak in 2013 and close to 140 vessels available globally. This segment is highly cyclical on the demand side, as such service providers try to keep the capacity balanced and in times of high demand, prices are going up. Vessel overcapacity is a side effect of cyclical demand.
Since the 2014 downturn, the number of active vessels decreased more than two-fold – from 140 in 2013 to less than 25 active vessels at the end of 2018 and less than 60 in Q4 2019. Yet, downsizing efforts of service providers to be able to operate profitably, did not produce sustainable results and many companies operate at cost or even at losses.
In the near term (2021) lack of larger-scale projects will continue to put price pressure on services companies and manufacturers. Additional price pressure on seismic acquisition originates from an extremely elastic supply, whereby cold stacked vessels could be easily and quickly put into operation, shall the demand go up.
In addition, the region makes a huge difference. For example, the price of 1sq km of acquiring 3D data in the Arctic could reach $10-$16K, whereas in West Africa $2-$5K. Day rates for a fully equipped and manned vessel are between US$60k-$200k for 3D Vessels and $15k-$45k for 2D Vessels.
Below are the pricing options that are common in the industry.
- A flat operational day rate for a fully equipped and manned vessel, with mob / demob charges. With mobilization fee being higher than the demobilisation fee. This approach is very favourable to contractors and requires the operator to take full control of the operations to ensure it is done efficiently.
- Rate per sq. km with standby rates and mob/demob charges. This pricing mechanism provides more clarity and encourages contractors to acquire data in the most effective and efficient way. Depending on the location, survey complexity and technical requirements (spacing, depth, grid, streamer length and type), charges per square km could be:
- Full fold square km
- Square km
The majority of equipment and vessels used in the services is manufactured by 3rd parties or leased. Hence equipment is acquired based upon the expected future demand and utilization. Seismic survey requires highly skilled labour and such services are consistently in demand. Manpower represents a significant cost burden upon service companies. The main cost elements are:
- Depreciation costs has a direct impact on the prices, as purchased equipment is depreciated over various time periods. With cyclical demand for the services, this is one of the highest cost elements.
- Personnel Costs highly volatile, seismic survey personnel is a very skilled job and lack of highly experienced personnel is always evident.
- Idling due to project-based and weather dependant nature of the category, whereby acquisition equipment and the vessel is not utilized throughout the year, the idling time is a large contributor to OPEX for seismic companies.
The daily operating cost of a high-end 3D vessel is between US$ 140k-US$ 150k per day ( Pareto Securities)
Value Chain Analysis
Value Chain Analysis
Most of the seismic equipment is manufactured by 3rd parties, except Sercel. Below are the major equipment suppliers.
- Sercel ( CGG owned) controls around 70% share of land cable systems & c. 90% share in marine streamers
- ION / INOVA
- OYO Geospace / Geometrics
- Bolt technologies
Vessels are built by various shipbuilding companies around the world.
Total Cost of Ownership
Total Cost of Ownership
- Being efficient in 3D seismic, in particular offshore, the area covered in a period of time is the measure of efficiency. Unless technically not feasible, covering the area as wide as possible, hence towing many streamers, is a key differentiator and helps to determine the total cost. In addition, efficient collection of high-quality seismic data and operational efficiencies such as fuel consumption, vessel endurance and equipment deployment and recovery, play an important role.
- Quality control at all times during data acquisition is vital. Hence, third party QA/QC on board the vessel or part of seismic crew onshore is required and normally provided by the client.
- A decision on who is in charge of managing a project and to what extent, i.e. outsource it completely vs. hire a fully-equipped vessel / seismic crew and manage the process in-house. The decision and degree of operator participation may have a significant impact on survey time and cost. In some instances, programme design and planning and logistics arrangements may be better dealt with by a contractor. Hiring a project management contractor to manage a seismic project is a common practice in many parts of the world.
- Ocean Bottom Cables (OBC) and Ocean Bottom Nodes (OBN) are fairly new technologies using 3D seismic, whereby small automonyneous nodes or cable are placed at the seabed in a predefined layout. While OBC is only used during field production stage for reservoir monitoring purposes, OBN can be used in lieu of traditional 3D seismic when towed streamers are used. OBN could be used in highly sensitive areas, transition zones, and close proximity to obstructions, deep water and many more. The drawback of OBN is the power supply, whereby batteries have to be replaced at certain time intervals, usually less than 60 days.
- Onshore cable-less systems is a method that well works in sensitive environments and has a much lower impact on the environment when compared with other methods. It also needs less people and fewer supporting vehicles.