During the 1990s geophysical contractors in the Gulf of Mexico (GoM) thought they had found their salvation in the multiclient market. The concept is simple: Rather than being contracted by an oil company for a proprietary survey, the contractors acquire their own surveys, often with industry prefunding, and license the data to multiple companies. It gives the contractors a data library with a shelf life, and it gives the oil companies data at a fraction of the cost of a proprietary survey.
Bolstered by their success, major contractors began investing in new vessels and expanding streamer capacity at around the same time that oil prices tanked at less than US $15/bbl. Left with idle capacity, many contractors chose to keep the boats busy shooting data with no prefunding rather than having to dock them. They valued the datasets at the same price as their prefunded datasets, but with no interested licensees the assets quickly lost their value.
PGS was one company that felt the sting particularly hard. “If you go back to the end of the 1990s, that is an example of PGS not managing its multiclient business properly,” said Sverre Strandenes, executive vice president of multiclient for PGS. “When the market became difficult because of the fall in oil prices, we put too much capacity into the multiclient segment with very little prefunding. That was one of the reasons we almost broke our necks.”
Contractors have obviously learned from their mistakes. In 2013, with continued high commodity prices and a return to exploration within the oil companies, the multi-client model is once again a key part of marine geophysics.
The GoM: granddaddy of them all
The GoM was the birthing spot for the multiclient market, and it also was a popular model in the North Sea. According to Matt Bognar, senior vice president of multiclient and new ventures, North America marine for CGG, the GoM has been kind of a laboratory for new seismic techniques.
“In the 1980s we were covering it in 2-D, and we got finer grids in different directions,” Bognar said. “Then 3-D started, and it was expensive, but we were able to drive the cost down so significantly that it covered the GoM with one or two blankets of coverage. That technology gave way to wide-azimuth seismic (WAZ), and in a very short time we covered the Gulf with WAZ. Now we’re on to the next generation.”
Robert Hobbs, CEO of TGS, added that the GoM is an ideal location for the geophysical business. “You have difficult geology and a lot of oil,” Hobbs said. “The reason we found all of that oil was because we developed technology to image deeper to find new prospects.
“Each time you develop new technology, you can shoot on top of an older dataset and still sell it.”
The region has proven to be a perfect testing ground for new technologies such as WAZ, but it also is a relatively risk-free environment for contractors to shoot multiclient data. Hobbs said that key factors include the small block sizes, regular lease rounds, frequent block relinquishments and farm-ins, and of course some really prolific fields.
“When governments have regular tender rounds, it creates an environment of competition,” he said. “If the oil companies know their competitors have a copy of the data, they have to have a copy of the data so they can beat their competitors in bidding for the block.”
The Macondo disaster had a profound impact on multi-client surveys in the GoM since licensing rounds were halted and no drilling was allowed. This caused many companies to look elsewhere, opening up new areas. But in general the disaster also caused companies to consider only the best technologies to further reduce their risk.
“Well costs are rising very substantially post-Macondo,” Bognar said. “You’re also looking at a modern world in which oil companies don’t want to be splashed on the evening news for having an accident. So all of these risk profiles are raised, and our business is to help them reduce that risk.”
The North Sea
The North Sea is another area that has been welcoming to the multiclient model. Strandenes said that 10 years ago the region seemed doomed from a multiclient standpoint. But it has a profile similar to that of the GoM, with smaller block sizes and more companies.
“Oil companies see that the ability to combine alot of these small programs that would be in competition with each other into a larger program where they can get access to seismic data in a cost- and time-efficient manner is a very good model for them,” he said. “This year multi-client in the North Sea is quite significant.”
Hobbs added that the multiclient model seems to be better accepted by oil companies than in the past. “They recognize that the technology we apply to the multiclient business is the same technology that would be employed if they contracted a geophysical company to acquire a survey owned 100% by themselves,” he said. “They can get the same technology and share the cost with other players.
“I think before there was the misperception that if you licensed data through the multiclient model you were getting something that was of lesser quality. We’ve demonstrated that that isn’t the case at all.”
Strandenes added that GeoStreamer, PGS’s deghosting acquisition technology, has been used routinely on its multiclient surveys in the North Sea since 2009.
The wild frontier
One of the most interesting aspects of the multiclient model in recent years is its ability to become a global phenomenon. When Brazil opened up in the early 2000s, companies swarmed to the area to make the model work. They were rather disappointed with the outcome.
Brazil had none of the things that made the GoM and North Sea so attractive other than regular licensing rounds, and even those stopped after the Tupi discovery in 2007. The blocks were much larger and the terms longer, meaning that only a few clients might be interested in data over any particular block.
But companies have learned how to overcome these issues by recognizing that different areas might require tweaking the original model. Part of this approach might involve getting the main operator to help fund the project with the understanding that the contractor can license the data in the future when part of that block might be relinquished.
“That actually takes some of the risk out of it,” Bognar said. “Since the acreage concessions are large and they’re held for some period of time, you’re not going to go in there with any sort of low funding. That’s not a place where you’re going to roll the dice.”
Macondo certainly forced both oil and service companies to review their portfolios, said Joe Gagliardi, vice president marine for ION Geophysical’s GeoVentures group. “After Macondo people came to the conclusion that they were highly [GoM]-leveraged,” Gagliardi said. “They made a strategic decision to diversify. The Gulf will always be a major basin, but to a certain extent there is a focus to extend the exploration horizon beyond it. It adds more players.”
But frontier areas also bring a different set of expectations. Roger May, sales and marketing manager for WesternGeco GeoSolutions, said that in some frontier areas, “any data are better than no data.” High-end technology like WAZ and reverse time migration (RTM) might be critical in the GoM. “But if we were shooting data in a new West Africa prospect, we might not use that level of technology,” he said. “People are not looking for the secondary oil fields there; they’re looking for the huge ones.”
Contractors entering new areas often find that local governments are unfamiliar with the model. “When you go to some countries in frontier areas, you have to teach them what the model is and convince them why they should allow you to shoot multiclient there rather than getting an oil company to pick up a block first,” Hobbs said. “A lot of education needs to be done.”
TGS and others have vastly expanded their frontier multiclient databases in recent years, with TGS investing in West Africa’s transform margin, the northwest shelf of Australia, and the Barents Sea. ION, meanwhile, has focused on East Africa, the equatorial margin of Brazil, and northeast Greenland, where its ability to acquire seismic under ice has allowed it to acquire data in areas that were previously off-limits technologically.
Technology drivers
In fact, one of the biggest drivers pushing the multiclient market ahead is new technology. Technology uptake is always slow in the oil and gas industry, but the acceptance of acquisition technologies such as WAZ and broadband and processing technologies such as RTM and full wave-field inversion has been dizzying, not only in proprietary surveys but increasingly in multiclient surveys as well.
“For us as a high-end company, the technology absolutely drives where we’re going,” Bognar said. “To stay relevant, we have to stay on the leading edge of the technology.”
CGG recently acquired most of Fugro’s geoscience business, and Idar Horstad, who was with Fugro and is now senior vice president of multiclient and new ventures, Scandinavia and Russia for CGG, said it was the advent of broadband technology that contributed to Fugro’s multiclient group welcoming the purchase by CGG.
“I was heading the multiclient activities in Fugro,” Horstad said. “We were serious players, investing more than 200 million euros [US $260 million] annually and investing heavily in Norway, the Barents Sea, and the northwest shelf of Australia. It was very complementary to what CGG was doing.
“But we increasingly started to get requests for broadband solutions, and that created a harder environment to get prefunding because we couldn’t deliver that technology. Rather than develop it ourselves, we chose to team with CGG.”
Geophysical data has a tendency to be commoditized by oil and gas companies, but these new techniques have convinced operators that it is worth paying extra for the additional information they provide. “Once the companies see that the data give them new geological information, they’ll spend more money because they’re buying datasets in areas where their current data don’t provide the imaging required to find new reserves” Horstad said. “But we have to show them that we actually are giving them better illumination and subsurface information than they’ve been able to extract from conventional 3-D data in the past.”
May added that new multiclient datasets actually have more new technology thrown at them than modern proprietary data. “A lot of companies see multiclient data as a way to deploy their technologies and commercialize them,” he said. “Oil companies want to set up a procurement model where there are multiple vendors, so they have to find a technology that everyone has. If they can’t find that, they can’t proceed.
“In multiclient surveys I make the choice about what technologies I deploy, and I’m not worried about running a competitive tender.”
This model has enabled companies to showcase their latest technologies. Broadband capabilities such as PGS’s Geostreamer, TGS’s Clari-Fi, CGG’s BroadSeis and Broad-Source, and the WesternGeco Isometrix marine isometric seismic technology are being incorporated into high-end multiclient surveys to give multiple clients the opportunity to see the benefits these new technologies offer.
Added Hobbs, “For companies that develop their own technologies, one of the best ways to demonstrate their value is to shoot a multiclient survey. These companies own the datasets, so they can show them. If you come out with a new technology and an oil company pays for the survey, it owns the data, and more often than not the company is not going to let you show those data.”
Maintaining discipline
It is unlikely that the multiclient model will ever hit the skids quite as badly as it did at the turn of the millennium. There are several reasons for this. No contractor wants to revisit that time, and internally there have been rules put in place to ensure that future multiclient surveys make good business as well as geological sense.
PGS underwent a restructuring in 2009 that resulted in a return to its core business of marine seismic. The company sold its land assets and reorganized from a regional organization to global product lines. This resulted in the multi-client business becoming a separate global product line.
“We increased the focus and attention on multiclient as a business segment,” Strandenes said. “That was an important part of a strategic move by PGS where we wanted to increase the activity based on the belief that if done properly, even at the bottom of the cycle, multiclient could still be a very healthy business.
“If we manage our multiclient business properly and have a strong portfolio of good opportunities, it also gives more flexibility to the contract part of the business to the extent that they can go after the best projects, and if they lose some, we still have very good alternatives,” he continued.
Even now companies use idle vessel time to acquire multiclient data. Horstad said that most contractors do not have a problem shooting speculative data to fill open slots in their vessel schedule if they have a good project in the right area. “Ultimately, they will be shooting a project that they haven’t had sufficient time to get funding for, or the timing is off compared to an ideal timing for a normal multiclient survey such that they have a spare vessel for a few months,” he said. “But normally everybody would like to see some funding on the projects because that shows real commitment from the oil companies.”
May said that WesternGeco stayed the course during the downturn because it enforced stringent internal controls on when surveys could be shot. “It has to make business sense,” he said. “As long as you do that, the return on investment can be quite good.”
TGS is in a slightly different situation. The company does not own its own vessels or equipment; it charters vessels from other contractors. Hobbs said the company builds a financial model for each of its surveys that includes a late sales forecast. This forecast helps determine the amount of prefunding required before beginning a survey.
Mostly it comes down to being aware of the market and its potential pitfalls. “You always want to question and analyze what you’re doing,” Bognar said. “If we’re studying our market forces, we understand the market, and we can keep our investment at the right size for that time and understand there will be ups and downs. The nicety of multiclient data is that in the down times when the boats can’t find work, we can still sell multiclient data, and it gives our companies an income stream.”