With oil and gas prices soaring, it might almost be time for seismic contractors to get invited to share some of the fun.
Every few months I revisit a familiar plot - the plight of the seismic industry. These companies are kind of like the kid nobody liked in grade school, the one who never got invited to birthday parties and hardly received any Valentines. In the heady climate of today's commodity prices, contractors continue to refer to the "slump" they're in, and they're feeling a bit left out. But that might be changing.
An analyst report from Simmons & Co. International on Veritas DGC Inc. had some rather positive things to say, both about the company and the industry in general. I'm not sure I'm going to call my broker and have him move all of my stock investments into geophysical firms, but these analysts, at least, seem to think those party invitations might be in the mail.
"Although seismic continues to be plagued by limited near-term visibility...conditions are slowly improving as the E&P industry continues to generate abundant free cash flow and work its way through a winnowing inventory of prospects," wrote analysts William Herbert and Justin Tugman. "Calendar Q3 results have witnessed a notable improvement in profitability for the seismic industry as a whole."
Quarterly gains
TGS-Nopec and PGS announced third-quarter gains as well, with TGS posting a 24% increase in net multiclient revenues and a 64% increase in operating profit compared to the third quarter of 1999. PGS reported a revenue increase of 4% over the previous quarter and multiclient sales of US $62.2 million. Both companies seemed bullish on the future.
"The strength of our data library sales late in the third quarter clearly demonstrates that No. 1, oil companies
are finally increasing spending on seismic data for exploration purposes, and No. 2, TGS-Nopec has developed its library in
the right places at the right time over the
past few years," said Hank Hamilton, chief
executive officer.
Reidar Michaelsen, chairman of the board and chief executive officer for PGS, said, "Oil and gas prices remain high due to tight supplies resulting from favorable global economic growth and limited excess productive capacity. Consequently, oil and gas companies have started increasing exploration and production spending due to the critical need to develop new reserves and enhance production from existing reserves. We expect to continue expanding our production and geophysical services businesses."
Merger impact
The Simmons report indicates "potentially profound" implications for the industry from the merger of Western Geophysical and Geco-Prakla, stating that the new company, WesternGeco, will control about 60% to 65% of the industry's 3D marine capacity. This will lead to further reductions in marine capacity, a critical component if the industry is going to recover.
Other positive indicators include increased use of channel capacity as more land crews return to work. WesternGeco mobilized three new crews to Saudi Arabia equipped with the new Q land acquisition systems in December.
Additionally, the report stated E&P companies "are beginning to cautiously put their best foot forward by gradually increasing capital spending as reflected by a rising North American rig count and the corresponding recovery in North American seismic activity from the deep cyclical lows of 1999 and early 2000. We expect this recovery to migrate to non-North American regions...throughout 2001."
Granted, as I write this, it's not yet Christmas, so by the time you read this, oil prices could have cratered and pushed seismic contractors back to square one. But one can hope the oil industry will remain strong, prices will stay steady, and the seismic industry will start to feel just a little more popular. n
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