Seismic six-pack marks a second coming!
  from: Offshore Engineer
  by: Andrew McBarnet
  Monday, July 07, 2008

Déjà vu is an over-worked expression but it’s the only way to describe the latest newcomer to the marine seismic business. Andrew McBarnet reports with some thoughts on the implications.

A couple of months ago a new pureplay international geophysical company with some big ideas launched itself on an unsuspecting seismic business community. The company called Polarcus, registered in the Cayman Islands but operating out of Dubai with a strong Norwegian investment and management influence, announced its intention of ordering six modern seismic vessels using the distinctive X-Bow hull design from Ulstein Design, a subsidiary of the Ulstein shipbuilding group.

If this rings a bell, sounds familiar, you would be right, so much so that you may have to give your head a shake to believe that it is actually happening. The point is that almost exactly the same business scheme was put forward by more or less the very same people two years ago. Eastern Echo was established in 2006 by a group of Norwegian investors which initially presented an ambitious plan to build four high-performance 3D seismic vessels at the Barreras shipyard in Vigo, Spain. In the process the company became the first marine seismic company to adopt the Ulstein Design X-Bow which promises improved performance in rougher sea states, enhanced safety and environmental benefits. The company went on to order a further two similar vessels for construction by Drydocks World in Dubai.

In November last year the brief life of Eastern Echo came to an abrupt halt when the company was subject to an uninvited takeover bid by Schlumberger. It was probably a shrewd move by Schlumberger which wanted to add capacity to its WesternGeco marine seismic fleet. At the time marine seismic vessel building slots were at a premium, so the acquisition of Eastern Echo meant it would have access to six new vessels already in the production process. Better still, construction was at such an early stage that the company could adapt the vessels to meet the requirements of its proprietary Q-Marine seismic acquisition system. One fly in the ointment at the time was that Sercel, the equipment manufacturing subsidiary of rival service company CGGVeritas, had already sold its solid streamer acquisition technology to Eastern Echo for the first two of the six forthcoming vessels. During the takeover process, CGGVeritas even went out and bought a chunk of Eastern Echo shares, basically as a defensive measure to protect the Sercel business. To its credit, once its bid was successful, Schlumberger honoured the prior contract although it decided that the Sercel units would be used by non-Q vessels in the WesternGeco fleet.

The mystery of course is how the Eastern Echo management could re-emerge so soon with an identikit of its original plan without any apparent infringement of the usual type of non-compete clause. Rolf Renningen is again CEO and a number other senior management were involved in the launch of Eastern Echo. The Zimmerman ship owning connections are again prime investors, and present too but with a smaller stake is Bjarte Bruheim, a familiar name in the business. Bruheim was part of the breakway group from Geco-Prakla in the late 1980s after it had been taken over by Schlumberger. That group formed Petroleum Geo-Services and enjoyed extraordinary success until the late 1990s market collapse. Bruheim, chief operating officer, left in 2001 and is currently chairman of Electromagnetic Geoservices (EMGS) and ODIM, supplier of back deck handling equipment to seismic vessels including the Polarcus newbuilds.

There are some differences from Eastern Echo this time around, for example the Polarcus vessels will be painted green rather than silver and white! But the management objectives are the same as is the modus operandum. Polarcus, the name, is apparently a Latin combo from polus (a pole) and arcus (bow, a curved structure), and if nothing else earns marks for originality.

So far it has been announced that the company will build all six vessels at the facility of Drydocks World, which is a major shareholder in the Polarcus enterprise. This time around four of the initial fleet will be high streamer (12) count 3D seismic vessels, and two slightly smaller hulls will initially be set up as 2D or source vessels with the capacity to be converted to six streamer 3D if desired. This is a nod in the direction of the growing market for wide-azimuth seismic surveys which need multiple source vessels in addition to the main towed streamer 3D seismic vessel for recording the data.

The equipment choice must be music to the ears of Sercel having lost out in the Eastern Echo takeover. Polarcus has signed up for the Sercel Seal marine data acquisition systems and Sercel G Gun II dual sources for all six vessels. The in-sea streamer sections are said to be Sercel's latest design of its Sentinel solid acquisition section.

Mirror image

From what one can ascertain, it seems that the Eastern Echo management were retained immediately after the takeover. However, once Schlumberger had determined that Q-Marine was to be the seismic acquisition technology of choice on board all these WesternGeco vessels, there was an apparently amicable parting of the ways without any serious restrictions on future employment. Even so, Schlumberger must have been somewhat astounded to watch a mirror image of its acquisition appear so soon in the marketplace. In public the company is staying mum, and in a sense, there isn’t anything to say. It made what looks to be a good investment in Eastern Echo, assuming that the demand for marine seismic holds up and potential impact of over-capacity does not rear its ugly head.

The most obvious parallel in recent times would be the emergence of Wavefield-Inseis, now a presence to be reckoned with in the marine seismic market: it has a growing fleet of vessels and a steady flow of significant oil company contracts suggesting that it has become an established player.Wavefield Geophysical, as it was briefly known before being merged with Inseis, came about as the result of the acquisition of Norwegian seismic contractor Multiwave Geophysical by CGGVeritas (at that time still CGG). Most of the Multiwave senior management walked and in no time were launching Wavefield. The patterns don’t end there, because Wavefield-Inseis turned out to be an acquisition target for TGS-Nopec Geophysical Company, now subject of a lengthy and as yet unresolved dispute.

The Polarcus management insists that it really does want to operate a fully fledged marine seismic contracting operation using the design features of the X-Bow design to focus on wide- and multiazimuth surveys and seismic acquisition in polar regions. In other words, it is not simply creating another sweet-looking takeover target. Insiders say that many of those behind Eastern Echo were genuinely frustrated by the Schlumberger bid and the loss of what was regarded as an exciting and innovative project. Assuming that Polarcus gets itself listed on the Norwegian market like its predecessor, the founding members may again not be able to retain control of their destiny.

This prompts the question as to whether there would be potential bidders for Polarcus on the open market. You would surely have to count Schlumberger out. Of the other big contractors PGS also seems an unlikely candidate having just bought a number of vessels from Arrow Seismic and invested in two super-size Ramforms. CGGVeritas is committed to a continuous fleet renewal programme and has already specified the Ulstein X-Bow design for its newbuilds coming in 2010. Adding the Polarcus units would accelerate the modernisation process, but the price might be an issue. After the Schlumberger experience, Polarcus people know that they have a valuable commodity. Smart money might have been on Fugro, if it wanted to push its Fugro-Geoteam marine seismic division into the big time with more global reach than is possible with its current fleet of around eight vessels, owned or on charter. However, Fugro declined to get into a bidding war with CGGVeritas over Multiwave a few years ago having made the first offer, so there would have to be some very persuasive arguments for it to pay over the odds for Polarcus if it was available.

There are some other things we can infer from the Polarcus episode. For example, it’s clear that confidence in the marine seismic market is still high. The Polarcus management, which is made up of industry veterans, believes its business plan will work and it has been able to attract investment. The total project cost for the initial six vessels is expected to amount to $900 million. In May the company reported secured financing totalling approximately $400 million, comprising equity of approximately $160 million, sale leaseback financing of $180 million and other financing of $60 million.

The implication is that the addition of this batch of six new vessels will not upset the supply and demand balance of marine seismic survey services, according to the investment/financial community, who are usually the first to call time on suspect projects. This is counter-intuitive given the general view that some over-capacity will be experienced once all the vessels due for completion by 2010 begin looking for work. The optimists argue that companies like Polarcus will be able to leverage the leading edge technology that its vessels represent to beat the opposition.

This could actually be true on account of an interesting trend in seismic surveys not often sufficiently articulated – which is that your average oil company is being squeezed in more ways than one. For a start less than 25% of the world’s prospective acreage is open to exploration by commercial oil companies and a lot of that acreage has been well surveyed. New oil-bearing structures in accessible acreage tend to be hard to find, residing in complex geological settings, deep water, etc. For oil companies this means that the risk factor in exploration is going up. Particularly in deep water or frontier areas, the cost of drilling is so expensive that a dry hole needs to be avoided if at all possible. The most expedient way to do this is to spend more effort on preliminary studies using seismic and other geophysical methods which can provide vital clues to where hydrocarbons may be found. It follows that oil companies will adopt the most sophisticated acquisition and processing solutions available, and Polarcus obviously hopes to fall into this category.

Outsourced expertise

This shifting scenario is putting seismic companies in an unusually strong position. There is a new appreciation of their expertise and the value it can offer. In times past oil companies themselves could take care of much of the processing and especially interpretation of seismic data. But the swingeing cutbacks in exploration and R&D departments have left all but the very biggest oil companies increasingly dependent on outsourced expertise for everything from the planning of seismic surveys to the delivery of interpretable data.

The bottom line is that seismic survey solutions can no longer be treated as a commodity, as was the case in the 1990s. In those days oil companies were simply interested in having their acreage covered by 3D surveys which delivered far superior imaging results than 2D seismic. In retrospect it can be seen that seismic contractors pandered to this requirement by focusing on increased productivity. At that time the pace was set by Petroleum Geo-Services (PGS) and its Ramform design vessels which could hoover up more data than other vessels with their increasingly large towed streamer spreads. As a result oil companies came to expect more for less and indeed took to berating contractors about the price of seismic and the need to find ways of reducing the cost still more.

In this context it can be seen that the collapse of the oil price at the end of the 1990s stranded contractors with a commodity that had already been squeezed on price. This hadn’t mattered while 3D seismic was in vogue, but now oil companies viewed even the discounted cost of seismic as too much for their reduced exploration budgets, and in any case managements were more interested in increasing their reserves through mergers and acquisitions rather than searching for hydrocarbons. To make matters worse, the marine seismic market was plagued by perceived over-capacity putting further downward pressure on prices.

As oil companies have returned to exploration to grow their reserves, they have come to realise that increasingly sophisticated technology will be needed to ferret out the remaining oil and gas which is not in the hands of nationalised oil companies. Acknowledgement of this development was probably the highlight of last month’s annual conference and exhibition of the European Association of Geoscientists & Engineers (EAGE) held in Rome, attended by nearly 6000 participants. The theme of the event - Leveraging Technology - was warmly embraced by the oil company speakers at the opening ceremony. Just a few years ago the refrain would have been the demand for more and cheaper seismic data. The pitch in Rome was more like a plea for co-operation in the development of new technology to meet spiralling demand.

Johnny L Hall, executive vice president ExxonMobil Exploration, and David Lawrence, Shell’s executive vice president for exploration, were basically agreed that oil demand would grow some 35% by 2030 and, if this was to be met, a huge investment in technology would be needed. As the service industry representative on the platform, Robert Brunck, chairman of CGGVeritas, made it clear what this meant. ‘Past experience should teach us how to strike the right balance in a cyclical industry,’ he said. ‘There are useful lessons to be learned and applied to future collaboration, as we focus on maintaining balanced relationships throughout the E&P cycle, helping us align capacity and solutions with the needs of the O&G community. When both partners are willing to cooperate and join forces, significant benefits can be gained, which exceed the mere sum of the competencies brought by both sides.’

This was the statement of a man in the driving seat. Oil companies should take note. OE

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