In the immortal words of Jerry Garcia, “What a long, strange trip it’s been.”


The late Grateful Dead singer probably wasn’t referring to the seismic industry when he penned that line. But a tour of the last 10 years in this volatile segment certainly does bear out his sentiment.


Let’s review: By the mid-1990s, 3-D seismic had come into its own, particularly offshore. Vessels were being equipped with longer streamers, and more of them, enabling them to acquire massive volumes of data in a relatively quick period. “Group shoots” were becoming common, enabling geophysical contractors to bite off ever-larger chunks of acreage in return for a guaranteed customer base that helped to pre-fund the survey and offset some of the financial risk. Offshore contractors enjoyed the ride so much that they decided to invest in newer, larger vessels that could tow more streamers, sinking millions of dollars into these campaigns.


Figure 1. The seismic industry is rumbling toward record earnings after years of hard times. (Photo courtesy of CGG)

Then all hell broke loose.


Oil prices dipped to the low teens. Gas prices in the United States barely scraped the US $1/Mcf mark. Oil companies retreated to their “times that try mens’ souls” mentalities, a scheme learned with increasing efficiency during the lean, mean 1980s. Seismic companies were left with too many crews, too many channels, too many vessels and scarcely any work.


What was different this time, though, was that the metrics stopped making sense. In the past any promising uptick was usually demonstrated first by increasing seismic crew count, followed by the rig count. This time around, the seismic industry seemed to get left behind. Commodity prices rebounded, and then some, hitting numbers that we hadn’t seen since the Arab Oil Embargo in 1973. More slowly, but still inevitably, service costs and rig rates rose to reflect increasing demand. But as recently as 2004 the seismic companies were left scratching their collective heads wondering when work would begin to come their way.


An oil company with any sense would have taken out a long-term contract on a crew around that time. When the reversal finally came, it came with a vengeance. Within 18 months geophysical contractors were up to their finely tuned ears in work, with a never-ending stream on the horizon. Suddenly the good work they’d been doing all along — high-resolution seismic surveys, enhanced processing techniques, an increasing ability to monitor fluid movement through reservoirs over time — was in high demand. Reasons for this are numerous but mostly were the result of what the pundits expected all along, that oil companies would eventually drill through their existing portfolios and, with the ever-present demand for reserves replacement from their shareholders ringing in their ears, would be forced to learn how to explore again. What’s less clear is how these contractors, some of them quite large, managed to survive during the lean times and come out with all guns firing once the dust from the price collapse cleared.


A wild ride


When asked to compare their annual revenues of 10 years ago to their most recent statistics, numbers vary among the major contractors. WesternGeco, which was Western Geophysical and Geco-Prakla back in 1996, had a combined $1.8 billion in revenue that year (the two companies merged in 2000). It expects growth in 2006 over the 2005 number of $1.66 billion. But President Dalton Boutte said that the numbers have varied widely in the intervening years.


“The trend from 1996 to the present was far from linear,” he said. “The companies rode the crest of the exploration boom in 1998 to combined revenues of around $2.5 billion and subsequently weathered the exploration downturn, when the joint venture revenues shrank to $1.2 billion by 2003.”


Thierry Pilenko, chief executive officer of Veritas DGC, said that 1998 was one of the best years his company had ever had (Veritas and Digicon had merged the year before). “That was the last good year,” he said. “After that things started to collapse.”


Other companies took a different route. BGP, the seismic arm of Chinese giant CNPC, has seen its annual revenue grow a whopping 55 times since 1996. The company started its international business in 1994 with one 2-D vessel, according to BGP President Wang Tiejun. Now it’s up to 42 seismic crews and 10 data processing and interpretation centers overseas. Tiejun added that the company’s annual revenue increased by 50% every year between 2000 and 2003.


TGS-Nopec Geophysical Co. (TGS) also has seen tremendous growth during this time. TGS and Nopec merged in 1998, and Chief Executive Officer Hank Hamilton said that the combined revenues of the two separate companies in 1996 were one-sixth of what they are today. The company has enjoyed steady growth, although that growth has accelerated in the past couple of years.


Figure 2. PGS' Ramform Victory sails past the Sydney Opera House. (Photo courtesy PGS)

CGG’s recent numbers show improvements just in the past year, with an 18% operating margin improvement from the first quarter of 2005 to the first quarter of 2006. Chairman and Chief Executive Officer Robert Brunck commented, “Given this strong beginning of the year compounded by a continued healthy geophysical market, which should grow by more than 20% in 2006, CGG should be in a position to reach as early as 2006 the financial targets initially set for 2007.”


What strategies did these companies embrace? Some invested heavily in research and development (R&D); some took advantage of major layoffs to beef up their expertise. But one key differentiating strategy seems to be the choice of contract work or multiclient work.


Whose job is it anyway?


The difference in these two strategies boils down to who calls the shots. In a contract job, the geophysical contractor is just that — a contractor who supplies equipment and services in return for an agreed-upon fee. Not that it’s simple; contractors work closely with the client to determine the exact specifications of the survey to be sure the client’s objectives will be met. At the end of the project, the client owns the data.


In multiclient work, the contractor has much more say in how, where and when the survey is conducted. This is fine as long as clients still wish to license the data, which now belongs to the contractor. Many contractors consider their “data libraries” to be one of their most important assets. But key to the successful multiclient business model is the ability to fund these surveys, sometimes 100%, up front as well as the discipline to shoot surveys that have a chance to sell as opposed to shooting surveys to keep vessels and crews busy.


Which is what practically deep-sixed the seismic industry in the late ’90s and early 2000s. “Everything went into keeping that business model intact, and some companies attempted to invest in the multiclient data library just to keep the vessels busy, which is the wrong reason,” said Pilenko. “You shoot multiclient data when you know there’s a quality opportunity, not when you have idle capacity.” But over-investment in seismic vessels led to serious overcapacity by the year 2000, and even with the retirement of smaller boats, the large multistreamer vessels proved to be too efficient, flooding the market with more channel count than it could absorb.


Some companies opted away from the multiclient model to a contract model and are very comfortable with that decision. PGS, for instance, was badly burned both by huge investments in new seismic acquisition capacity and by a decision in the 1990s to invest in the floating production, storage and offloading market, resulting in the company filing for Chapter 11 bankruptcy by 2003. “Since then PGS has had a substantial turnaround in profitability performance,” said PGS’ Chief Executive Officer Svein Rennemo. ”We regained our financial health through a decisive shift out of multiclient work and into contract work, giving us a very robust cash flow development through the years of crisis.”


WesternGeco reevaluated the benefits of the multiclient market as well. “The model had to transition from a model centered on high-risk, speculative surveys to one that is increasingly focused on groups of clients who will significantly pre-fund surveys in order to have access to the latest technology,” Boutte said. “This evolution has allowed WesternGeco to achieve a much healthier long-term balance between proprietary and multiclient work.” He added that one of the valuable lessons learned during this time was that a business model that worked in the Gulf of Mexico couldn’t easily be exported to other parts of the world (Brazil, for instance) without serious repercussions.


Other companies never gave up on the multiclient model. Fairfield Industries, for instance, does virtually every survey as a multiclient survey and feels that this gives the company the ability to plan its work without being at the whim of clients or commodity prices.


Figure 3. A crew member prepares to launch nodes overboard. Nodal technology is one the latest developments in marine seismic acquisition. (Photo courtesy of Veritas DGC)

“Most companies with crews have to manage them and move them around to different clients,” said Marc Lawrence, senior vice president and division manager, data licensing for Fairfield. Lawrence said that Steve Mitchell, vice president and division manager of operations, isn’t subject to those same uncertainties. “Steve has the luxury of having me for a client,” he said. “He knows 2 months from now where he’ll be able to put a crew. He can manage those assets much more easily than someone who does contract work.”


Mitchell and Lawrence consider their data library to be Fairfield’s most important asset, and it’s carried them through the bad times as well as the good. Like real estate, location is the main factor in determining the value of a database (quality doesn’t hurt, either).


“During the downturn, we benefited because our spec data was in an area, the shallowwater Gulf of Mexico, that was still an area that people wanted to explore,” Mitchell said.


CGG has not shied away from the multiclient approach, and that company recently reported that demand for multiclient surveys was “exceptionally high.”


Hamilton said that one of the main challenges his company faced over the past 10 years was maintaining confidence that serious investment in its multiclient library was the right thing to do. “This has transformed the company from a marketing and brokerage firm into a full-fledged data library owner,” he said. “From an early stage we recognized that we needed to invest in that library asset in a highly disciplined manner and on a continuous basis, in up and down cycles, to keep it fresh and attractive.” TGS has increased its data library investments every year since 1996 despite the downturn, he said.


Veritas considers its data library to be a key asset as well, and Pilenko said that processing was one of the primary aspects of keeping the library up to date and attractive for licensing. “What customers see and make their decisions from is ultimately what comes out of processing; it’s not just what comes out of the tape or the boat or the crew,” he said. “As we continue to develop very large multiclient data libraries, we need to have the ability to constantly upgrade that library with new processing technologies. You don’t always have to reacquire; you just apply new techniques.”


New technology


Another interesting thing about the oil and gas industry in general is that bad times seem to engender new ideas. Perhaps it’s because employees are desperate to put their companies ahead; maybe it’s just because they have more free time on their hands. But idle crews certainly didn’t mean idle brains during the slow times.


Boutte said that WesternGeco worked very hard to continuously enhance its Q technology, a single-sensor acquisition approach that’s available for land, marine and borehole applications. Maintaining research spending during this time was a challenge, he said, but one that the company viewed as a priority.


“The development of Q technology was ongoing during this period, and the technological complexity required large multi-year investments,” Boutte said. “Having support from our stakeholders was critical to ensuring the delivery of a step change in seismic technology that provided a fundamentally better measurement.”


PGS also experimented with acquisition techniques during this time, perfecting its high-density 3-D (HD3D), multi-azimuth and wide-azimuth methodologies. And while some companies were focusing on smaller, more reservoir-scale development and production seismic surveys, PGS moved in the opposite direction, shooting “MegaSurveys” for basin-scale interpretation of petroleum systems.


Tiejun named several advances at BGP, including LKseis for acquisition optimization, GRISYS for data processing, GRISTATION for geological and geophysical study and interpretation, and an integrated processing and interpretation package called GeoEast. Additionally, the company has advanced its techniques in massive 3-D vertical seismic profiling technology and wide-azimuth acquisition.


Veritas is pushing wide azimuth as well and in fact shot the first survey in the Gulf of Mexico for BP. Pilenko says the uptake of this technology is a testament to the changing attitudes of exploration and production (E&P) companies toward 3-D seismic.


“Although price is always important and E&P companies have been gearing themselves toward price efficiency, earlier this decade price was not the only factor anymore,” he said. “Quality was becoming more important. Oil and gas companies started to realize, particularly with seismic, that they had gone too far in slashing down their resources and in squeezing the service companies. Not that they became generous overnight, but they realized that something needed to be done and that there were opportunities to be unlocked through innovative seismic techniques. For that they needed to give us a little more freedom.”


Even smaller companies like Fairfield are pushing the technology envelope. Over the past couple of years the company has unveiled its Z system, a nodal system that can be deployed offshore and placed on the ocean bottom to acquire surveys. A recent deepwater test at BP’s Atlantis field recovered more than 99% of the data at more than 1,600 node locations. Mitchell said that the average node deployment was within 8 ft (2.5 m) of its pre-plotted location, proving that the system will work well in time-lapse applications.


“It started out on top of the escarpment and went down through the escarpment into the mega-furrows, in the worst currents recorded in the Gulf of Mexico,” he said. “And it worked.”


The human element


“Technology doesn’t happen in an abstract world; it happens in people’s brains,” Pilenko said. “Our role is to give them the resources and the environment.”


All contractors were quick to point out the value of their workforces. While contractors were not immune to the need to lay off some of their workforce during the difficult years, many of them also took advantage of oil company mergers to pick up talented individuals who might otherwise have left the industry for good. And there seems to be a general sense that loyal employees might share more than a bit of the credit for these companies’ survival.


“Having the best people is one of the key pillars in our ability to deliver outstanding service quality to our customers,” Boutte said. “Schlumberger has always been a relentlessly international, diversified organization that recruits globally in good times and bad, and develops from within. WesternGeco has benefitted from the same model.”


Tiejun’s company faced a particularly difficult challenge in attempting to go international since English, not Chinese, is the closest thing we have to a universal language. “The toughest challenge during the last 10 years facing BGP was the lack of human resources,” he said. “BGP made great efforts to train key Chinese staff for English (and other languages); health, safety and environment management; operating overseas; etc. Meanwhile, BGP has adopted the Maximum Local Content policy for operations overseas. By opening more local employee training centers in the English-speaking countries and regions, qualified personnel have been recruited to meet the demand of an expanding international business.”


Veritas was one company that kept hiring when others were firing, Pilenko said. “As E&P companies were merging they realized that they probably needed less technical power in R&D than they used to, and they targeted R&D as an area of synergy. I think that was a huge opportunity for our side.”


He added that the culture at Veritas encourages these employees to pursue their ideas with little intervention from above. “Some of them have been brought into existing projects, but some of them were brought in just because they were smart,” he said. “They defined their projects themselves.”


Added Hamilton, “A snapshot of our employee headcount at the end of each year during the past decade also shows growth in each and every year, even the most difficult ones.”


Other companies struggled mightily to keep the good employees they already had. Even though Fairfield had to shut down a crew in 2000, Mitchell said he kept the key people.


PGS has probably had the toughest struggle of all, yet even there the employees have proved their loyalty. “PGS managed to get through the crisis years because our people stood by the company and continued to earn the respect of our customers,” Rennemo said. “With this working well, the rest was ‘easy,’ including financial restructuring.


“To me, this continues to be the main source and driver for our success.”