Seasonal pickings
  from: Offshore Engineer
  by: Andrew McBarnet
  Friday, May 16, 2008

It is always good to catch up. This month Andrew McBarnet offers some updates on some running stories in the E&P geoscience arena.

Judging by the number of pilot projects in progress or in the planning, oil company interest in the use of permanent seismic reservoir monitoring systems seems to be stirring. About time too is what many would say. BP’s Valhall Life of Field Seismic (LoFS) project in the Norwegian offshore sector has been acknowledged for some time now as a technical success.

It began in 2003, since when only BP has continued to apply the technology on a commercial basis, on the Clair field (UK sector) and the Azeri-Chirag-Gunashli field complex in the South Caspian Sea, offshore Azerbaijan. The only other company initially expected to follow BP’s example was Shell. It had fairly advanced permanent seismic reservoir monitoring plans for its Mars field in the Gulf of Mexico as well as the Nelson field in the North Sea and offshore Sabah, Malaysia but eventually backed off.

Along with Valhall, the Clair field LoFS project has been under way since 2006 when cable – as in Valhall provided by OYO Geospace subsidiary Geospace Engineering Resources International (GERI) – was buried over the reservoir site, west of the Shetland Islands. Latest update is that Wavefield Inseis has been awarded a contract for the provision of a source vessel Malene Østervold to carry out the latest 4D seismic monitoring survey with acquisition

Scheduled to begin in July, it’s useful experience for Wavefield which has been developing its own permanent seabed seismic reservoir monitoring system based on fibre optics.

In fact the other BP project offshore Azerbaijan is not strictly a permanent seabed operation. There is a GERI ocean bottom cable set up. The equipment is moved around the reservoir to fixed locations. At each site, a source vessel, currently the Pacific Raider, shoots over the receiver cables so that the acquired data can be compared with previous surveys over exactly the same position (apparently to within 1m). The Chiraz Azeri Reservoir Seismic Project (CARSP) was first mobilised in 2006 and again late last year with project management provided by UK-based WGP Projects. The source array has a modular and portable containerised element that is placed on the vessel. Hoping to capitalise on the permanent reservoir monitoring market, WGP acting as agent and manager for UK company Thalassa Energy Services will be coming out later this year with a proprietary Portable Modular Source System (PMSS) for life of field seismic, as well as wide-azimuth and undershooting applications..

In theory the benefits of these life of field systems are multi-fold. Operationally, once the cable is buried over a reservoir, it’s there for good and there’s no need for anything more than a shooting vessel to make passes over the reservoir from time to time. Technically, many of the issues that have vexed the industry regarding repeatability of 4D seismic surveys are overcome with permanent receivers; the added bonus is that the data is multi-component including both p- and s-wave which can be invaluable in complex geological settings. Economically, after initial installation, the cost of repeat surveys is dramatically reduced while the bottom line reservoir management information value has been enormous.

BP has been saying that the improved recovery from Valhall as a result of its permanent seismic reservoir monitoring amounts to around 6% which translates into 60 million additional barrels of oil. Cost of the project is believed to have been in the region of $40 million, so the math is a no brainer.

It’s probably the numbers BP has been throwing out that have excited interest from some of the other major companies. Also, in a world of shrinking exploration opportunities, international oil companies have increasingly to maximise recovery from existing resources, and some version of seismic monitoring appears to be a useful tool in this department. The factors holding back rapid adoption of LoFS technology are usually cited as the oil industry’s notorious reluctance to adopt innovative concepts and share-price driven shortterm investment strategies, exacerbated by asset team managements also focused on rapid results rather than legacy spending.

Oil companies are not solely to blame for being backward in coming forward in this case. On the supply side, the overall geophysical expertise resides with the main contractors; they understand and deliver 4D seismic projects mainly using towed streamer technology which is an economically proven if not perfect technical solution for oil companies. As far as LoFS type operations are concerned, there is very little of operational interest. The heart of the system is the recording equipment on the seabed, which is a one-off supply from a specialist manufacturer. Providing the source for the monitoring surveys doesn’t require a major contractor or sophisticated boats. The only real interest for the big players would be in the processing of the data.

The LoFS business model, therefore, is problematic. Yet the opportunity, especially if permanent monitoring were to become the norm for offshore oil fields, cannot be passed up. This is why some seismic contractors and manufacturers are courting oil companies with next generation systems and, in return, are getting a better response than was the case a few years ago.

The perceived best option for life of field is felt to be a seabed fibre optic cable system, which is expected to provide improved reliability because it involves no electronics in the water. Systems developed by PGS,Wavefield through its company Optoplan (Weatherford inspired equipment), and the UK-based Stingray company with technology originating from the military, are the current front runners. More conventional ocean bed cable systems for permanent monitoring are also available or in the pipeline from OYO Geospace, the only company to have sold a commercial system, CGGVeritas through its Sercel subsidiary, WesternGeco and Octio Geophysical, a new company closely tied to ION Geophysics. ION already provides an ocean bottom cable exploration survey version of its VectorSeis Ocean technology to the Norwegian company Reservoir Exploration Technology (RXT). Oil companies with pilots or tests of permanent systems planned or under way include ConocoPhillips, which will experiment on the Ekofisk field, StatoilHydro, Chevron in the Gulf of Mexico and BP. It looks like a case of all the usual suspects, but apparently a number of other companies are close to involvement.

Negative seismic campaign

Rather like the cut and thrust between Hilary Clinton and Barack Obama in their contest for the US Democratic presidential nomination, the seismic community has its own ongoing slugfest between two companies who are supposed to be on the same side.

Last August when the boards of the Norwegian-listed companies TGS-Nopec Geophysical (TGS) and Wavefield Inseis agreed a merger, it seemed like an ideal union (OE September 2007). TGS, an established leader in multi-client marine seismic surveys worldwide, would join up with a surging go-ahead company offering the full range of marine geophysical services including research interests in LoFS and electromagnetic methods. For TGS, in particular, the merger was an excellent strategy for securing more vessel capacity in a tight market and an opportunity to expand away from its traditional focus on multiclient surveys, a business model which arguably was beginning to look a little fragile in changing offshore seismic market conditions.

The deal began to unravel on TGS’ fateful shortfall in its earnings for the third quarter last year, announced in last October after the merger agreement between the two boards but ahead of ratification by shareholders’ meetings. An extraordinary meeting of the Wavefield Inseis shareholders, alarmed at the drop in share value as a result of the TGS statement, cried ‘foul play’ demanding satisfactory evidence that TGS was unaware of the shortfall at the time of the merger. TGS countered with an independent audit which exonerated the company from any impropriety, but the damage had been done and Wavefield’s board and shareholders have basically dug in their heels and refused to be mollified.

Having exhausted every other avenue, TGS invoked the arbitration process agreed at the outset of the merger in the event of a dispute. Meantime Wavefield sought legal opinion, detailed on its website, which can be deciphered to say that the company cannot be forced to merge.

TGS seems to have got the hint. Last month the company put out a statement about the appointment of the three appointees to sit on the arbitration panel, which will not meet until September. It noted that it had also filed a writ against Wavefield demanding that the merger be completed as approved and was reserving the right to seek compensation for the merger plan violation. It said: ‘The unjustified withholding of confirmation from Wavefield, causes a substantial loss for TGS shareholders, estimated to be approximately $700 million for forgone synergies, forgone earnings, capital expenditure costs etc.’

Outside the TGS camp, and maybe even inside, there is no expectation that the two companies could now work together harmoniously. It will have been well over a year since the merger was first mooted before the arbitration panel gets to work, never mind comes to a conclusion. In that time both companies have evolved. TGS has continued to undertake multi-client surveys and has joined with WesternGeco in some of the first wide-azimuth projects in the Gulf of Mexico. It is also building on the A2D well-logging database business which it bought a few years ago and has now rebranded as TGS Geological Products & Services.

The market perception as reflected by stock performance suggests that Wavefield has less to lose in the event of the merger going south. The company has certainly been expanding its fleet aggressively and since its inception in 2005 has emerged as a significant player worldwide. It will soon have five highcapacity 3D vessels and four 2D/source vessels in operation. Ironically, the high performance 2D vessel Discoverer 2 joining the fleet in June on an 18 month bare-boat charter from Shanghai Offshore Petroleum Geophysical Corporation was previously chartered by TGS and did work in co-operation with Wavefield in New Zealand.

CEO Atle Jacobsen said in February that Wavefield has chosen ‘to let the arbitration process run as a background process, whilst refocusing on continuing our successful organic growth and creating value for Wavefield shareholders on a standalone basis . . . the company finished the year delivering an annual revenue growth of 572% and establishing itself as a significant worldwide supplier of marine geophysical services.We enter into 2008 with the goal of more than doubling our 2007 revenue and already have a record-high backlog’.

The next president of the United States will probably have been elected before this saga ends, but you have to wonder at what these two companies could achieve if they did resolve their differences, impossible as that might seem right now.

EM under the weather

A few months ago in this column, the challenge of bringing new technology to market was discussed in the context of marine controlled source electromagnetic surveys (CSEM). It was suggested that the leading companies ElectroMagnetic GeoServices (EMGS) based in Norway and Offshore Hydrocarbons Mapping (OHM) based in the UK were still struggling to get past the predictable early adopters of the technology, despite being able to substantiate its claim to be a direct detector of hydrocarbons and a valuable addition to the explorationist’s toolbox, especially when used in conjunction with seismic data.

Dalton Boutte, president of WesternGeco, which has its own EM solution, stated last month (OE April) that the estimated value of the market was relatively small, in the $200-250 million range with his company predicting a slow growth to a possible $600 million by 2010-12. He made the point that CSEM was still not regarded as mainstream by the industry.

Of the two main companies, OHM has been most forthright about the problem. OHM’s six month interim results to end of February showed revenues of £4.7 million compared with £7.6 million in the previous half year, and were preceded by a less than upbeat operations update a month or so earlier. This warned of the challenging market conditions and a full year performance significantly short of the company’s expectations. The problematic issues were identified as ‘the lumpiness of market adoption and a pronounced seasonal imprint on the CSEM market’.

The company said oil companies in the UK and Norwegian sectors were including CSEM in their planned work programmes for new licences and adoption was proceeding well, but in other regions adoption had not moved at the same pace. The winter months had therefore seen over-capacity in the market. In addition, OHM seems to have experienced some bad luck with proposed projects in Southeast Asia and West Africa. As a result it stood down its Energy Miner crew, but this summer expects to be operating with its planned three crews in line with the seasonal upturn in demand and still contemplates the introduction of a fourth crew at some point.

Operationally, EMGS has a much larger fleet with five vessels in service and two more under construction, and has recently won some high profile contracts offshore Mexico, Southeast Asia, and most recently, Barents Sea survey work for StatoilHydro. But it still looks to be a tough order for the company to keep its CSEM capacity busy enough to meet its investors’ expectations.

In April there was some morale boosting news for EMGS from the Dutch patent court which lifted the share price a notch or two. The court upheld three patents challenged by Schlumberger although a final decision by the European patent court is some years away. EMGS CEO Terje Eidesmo said: ‘This decision confirms that EMGS was the first company to use EM technology to directly detect hydrocarbons, that we can assert our patent position with clients, and that we can invoke our patents against third parties. The court’s decision is welcome although it is not material in terms of our ability to deliver on our business strategy. We do expect further patent challenges as more companies realise the game changing nature of EMGS’s EM technology and will continue to defend our patents in the interests of our shareholders and other stakeholders.’

The ups and downs of the evolving marine EM business have clearly not deterred Fugro. In March the company became the last of the bigger geophysical contractors to make an investment in the technology. It paid $10 million for a 60% interest in a Russian company which is said to have decades of experience in EM applications in the oil and gas industry.

Another interesting contender joining the CSEM stakes in earnest this year is none other than Wavefield Inseis through MultiField Geophysics, a consortium of Hydro Ventures (49%),Wavefield (41%) and the Norwegian Geotechnical Institute (10%).

It expects to have a commercial crew out later this year deploying an ocean bottom cable system which can combine EM and seismic data acquisition in the same operation. Essentially the source vessel makes two passes over the cable array on the seabed, once for EM data and once for seismic.

Meantime PGS continues to develop the ultimate solution of a towed streamer system combining EM and seismic acquisition based on the MTEM technology it bought last year. Some of the competitors are doubtful whether such an approach is feasible and no other company seems to be going down this route at the moment. OE

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