LONDON—When it comes to what the upstream industry considers the best value for money, it’s all about the price, according to the CEO of geoscience player CGG.
Jean-Georges Malcor, speaking in London during the PETEX exhibition and conference organized by the Petroleum Exploration Society of Great Britain, told the audience this was not a wise long-term approach for the industry. CGG and the wider industry need to reinvent the way they work with customers, taking a more partnership-style approach, he said.
“Today the whole business is too much about procurement. It is very, very difficult today in the current circumstances to be in a position where we can value the technology, where we can value the innovation. At the end of the day [the] best value for money in the current circumstances means best prices, full stop.
“Should we accept that? I do not think so. I think we need to stand up as responsible people and engage with our customers. To say okay, are we important in your business long-term? Do you believe geoscience is an important part of your chain? If yes, we need to sit down and talk, and reinvent the way we are working.”
Malcor highlighted how the seismic sector has been decimated by the plunge in global E&P capex over the past 10 years, with the global capex figure falling 45% from $650 billion to $350 billion.
“Most importantly, $300 billion of this capex has been evaporating over the last three years,” he said. “So for us in geoscience in the upstream part of the chain, we have had three years of continuous massive falling, and all regions have been affected.”
This means the sector is now essentially in “our fourth year of a starvation diet. So for us the market has reduced by 60% since 2012, which was a good year for the industry. That was the last good year. Traditionally, the seismic market would represent between 2%-3% of the global E&P spend that I mentioned, but now it is clearly below 1% since all of our customers massively cut their E&P spending.”
He highlighted the marine seismic sector in particular, saying that since 2005 a total of 35 new seismic vessels had been launched, which equated to around $7 billion of investment in the market. That investment was attached to a “huge level of debt,” of which it is possible to recover very little, he said.
“The collapse of the market since 2013 did not give us time to recover the normal payback that our investors, our shareholders, should be in a position to expect from this sector. Despite huge industry efforts to cut costs, marine seismic prices have been collapsing, and the industry is struggling to cover the cash costs. And it does not make sense to run a business where you have to pay to run your assets.”
CGG has—like most other companies—had to cut back, slashing its prices and reducing its workforce from around 11,000 in 2012 to less than 6,000 at present.
CGG has also repositioned itself as a fully-integrated geoscience solutions provider, something the company started to implement in 2012 when it acquired Fugro.
Malcor remains optimistic about the future, saying the market will recover “because basically the fundamentals are still there. There is the demand, which has been slowing down but it’s still there, growing 1.5%-2% per year. At the same time, in front of this demand, industry reserves are coming down by around 5% per year.”
As a result, the oil and gas industry will face a “massive squeeze” at some point in terms of needing to find more resources. The problem is predicting when that will be, and can the industry meet the demand, he added.
“There is a lot of reserve replacement which is coming through M&A, from acquisitions requiring new assets and new blocks. Will it be enough to meet the demand long-term? I have my own doubts.
“I think that we will need to turn back to exploration. 60% of oil production in 2035 should come from new discoveries and 40% from existing fields. To do that we need to increase the success rate; we need indeed to try less wells but better wells, with less failure and more success.”
Shortened Time Cycle
He also highlighted the long-winded cycle it takes from exploring a prospect to producing the first drop of oil from a field and the increased focus today on trying to reduce that period. At present it is often eight to 10 years, with CGG working to help try and reduce that time to “three, four or five years maximum.”
CGG is also focused on trying to help customers extract more from its existing reservoirs by better delineation and understanding of the reservoirs, to perhaps extract more at marginal cost.
“One trend we are seeing in the multiclient business is where we have a huge request from our customer base today to better understand the fields they are operating, and geoscience and seismic has a very big part to play in this particular way,” he added.
“Regarding the future of oil and gas, personally I’m convinced there’s a bright future. Yes, we are going through a very difficult period; we are in the middle of the trough,” he continued. “I hope that we have reached the bottom of the trough. But will the rebound be one quarter, two quarters, three quarters? I don’t know, but there will be a rebound; there’s no doubt from me. Will we reach the same type of business as in the past? Probably no –the future will be different and we have to accept that.”
Technology Moves On
Costs will not go back to where they were before, he said, which is correct because “they were too high.” But technology is continuing to move forward, and in areas like deep water and ultradeep water, costs will continue to come down.
“I can take a bet today that in five years from now the industry will know how to operate ultra-deepwater wells probably at a reasonably reduced price to what it is today because technology is going to bring new solutions.
“So we need to take a leap of faith in all of this and say okay, let’s go through the trough, this difficult time the best we can. But let’s make sure that together we build a sector, that we are clever enough to work with our customers, our partners and our competitors to make sure the industry is not damaged too much by the end of this trough.”
Mark Thomas can be reached at email@example.com.