EM expectations rise on celebratory tide

Andrew McBarnet
Sunday, April 1, 2012

Andrew McBarnet joins in a 10th birthday party.

It is not entirely coincidental that the current market optimism discernible in the marine seismic community extends to the offshore electromagnetic (EM) survey business. The two technology applications are both susceptible to the same favourable industry indicators.

We are talking here about the price of oil which continues to remain high enough to encourage oil companies to focus on new E&P projects. Indeed all the key international oil companies are committed to bigger budgets this year. At the same time the cost of drilling offshore, especially in the deep water where much future oil resides, continues to escalate meaning that oil companies welcome any subsurface geophysical data which can improve the chances of a well being successful. Needless to say marine seismic and EM offer current and evolving technologies to reduce exploration risk and better delineate reservoirs to maximize production and improve oil company bottom lines.

So, with the acceleration of the E&P investment surge which began last year, the offshore EM folks could reasonably expect more favourable conditions in which to operate. The emerging technology suffered a nightmare period in 2009. Industry spending was at a low ebb in the cycle which also affected marine seismic activity worldwide. But at least two other factors mitigated against the EM companies.

First of all, there were only two serious operators, Electromagnetic Services (EMGS) based in Trondheim, and Offshore Hydrocarbons Mapping (OHM) in Aberdeen, to which you could add the odd survey carried out by Schlumberger’s WesternGeco EM division. Both EMGS and OHM operated as independent public companies without the luxury of a safety net provided, say, by being part of a larger geophysical services company. As a result when orders began drying up in the economic downturn of the time, both companies found themselves especially exposed, particularly taking vessel chartering commitments into account.

Secondly, the dedicated offshore EM companies were vulnerable because – justifiably or not – the jury was still out on whether marine controlled source electromagnetic (CSEM) technology was worthwhile. In essence the big attraction of the marine CSEM method was the direct detection of hydrocarbon indicators, something not possible using marine seismic which can image prospective structures. CSEM normally requires a horizontal electric dipole source with user-specified frequency content. The source is towed along a towline usually close to the seafloor.

In a standard 2D survey, receivers are positioned on the seafloor along the towline. In a 3D survey, itself a development from the first surveys, the receivers are positioned in a grid on the seafloor. One refinement promoted by EMGS has been the concept of scanning using a more sparse spread of receivers in order to cover a wider acreage: the method was targeted at acquiring early EM data over frontier areas.

Today data analysis includes modelling and inversion techniques to obtain one or more resistivity models of the subsurface that explain the acquired data. These resistivity models are then meant to be correlated to seismic and geological data to provide most value. There were early successes for the method as a direct hydrocarbon indicator in the early part of the last decade, notably offshore West Africa, which in hindsight raised unrealistic expectations of a completely untried commercial technique. Sales hype by the companies in the bid to attract investors didn’t help either. Once the word was out about the potential drawbacks, for example, in terms of geological setting, workable water depths, data processing and integration issues with other geophysical and well information, it was understandable that some oil companies in a period of belt tightening decided to dispense with any proposed EM survey as a questionable investment with uncertain outcome.

Exciting possibilities

It seems fitting that this year EMGS, the company founded on the basis of the breakthrough research by Statoil scientists in the late 1990s, should be celebrating its tenth birthday just as offshore EM appears to be entering a new period of exciting possibilities. This is underlined by an increasing acceptance of the technology by the mainstream E&P oil industry. EMGS execs say that, since the technology was introduced in 2001 following a legendary Statoil-sponsored test cruise off West Africa, the evolution of CSEM provides a textbook example of the commercialisation of innovation. The birth period (1997-2004) was followed by euphoria as experienced 2004-08; consolidation (2008-10); and now a period of renewed growth.

We only need to take up the story at the tail-end of the consolidation era to see how the stakes have totally changed in the marine EM business and technology world with EMGS emerging as the clear winner – for the time being. One important development has been the validation of the role of CSEM which has surfaced in some Norwegian independent reports in the last two years. A study of 60 surveys by Statoil in 2009 showed that CSEM was becoming increasingly useful in de-risking drilling prospects. This type of proof was important for EMGS and OHM which, if the truth be known, had to spend far too much energy on educating potential customers on how the technology might help them rather than getting on with the job.

There have now been over 600 CSEM surveys worldwide with EMGS now experiencing a build up of backlog suggesting that there are many customers out there among both international oil companies and national oil companies who perceive the benefit of marine CSEM technology. It is a moot point whether the technology has actually ‘crossed the chasm’ from the early adopters and enthusiasts to the mainstream E&P industry. However, last summer EMGS got a huge vote of confidence from Petrobras which awarded the company a $90 million contract to perform a range of EM surveys over the period of a year in frontier and mature basins offshore Brazil using the BOA Galatea. EMGS CEO Roar Bekker referred to the contract as a major milestone for the company and its technology, and he was probably right.

Confidence in CSEM surveys up among potential clients was until recently undermined to some extent by unresolved patent issues between EMGS, OHM and Schlumberger. EMGS can enjoy its 10th anniversary knowing that the problem has gone away, literally in the case of OHM. Statoil and EMGS always maintained that its patent on the initial concept was effectively copied by OHM and Schlumberger. It persisted with the claim in the courts leaving potential CSEM users worried about the final outcome and possible liability.

In the case of OHM, the annus horribilis of 2009 proved too much for its survival. The company was compelled to separate its specialist rock physics/EM interpretation business built on Rock Solid Images, which it acquired in 2007, from the vessel-based CSEM acquisition survey operations arm. In August last year EMGS ended up buying OHM Surveys and negotiated the future use of the company’s two EM survey vessels. Meantime Rock Solid Images has essentially reverted to its previous incarnation as a rock physics specialist. The only real change is that the company now also functions as one of the few independent providers of interpretation/ integration services for CSEM data for which there is growing demand as the number of surveys worldwide increases.

Patent resolution

This is borne out by recent resolution of the ongoing patent issues between EMGS and Schlumberger which is the parent company of WesternGeco and its EM division. Last December EMGS and Schlumberger decided to patch up their differences by entering into a cooperative agreement highlighting that the parties would offer to the industry their respective expertise in the marine EM related fields of processing, advanced modelling and earth model building. This was tacit recognition by EMGS of the perceived lack of interpretation and integration support for clients who have commissioned CSEM surveys: it is an area that Schlumberger for one has focused on in recent years. That said, the optimisation of EM data in understanding the subsurface is still a work in progress with a number of joint industry research projects on the topic ongoing. It therefore continues to be the biggest stumbling block to the EMGS vision of marine CSEM being a routine part of E&P offshore activity.

In the recent deal Schlumberger withdrew from patent disputes in the UK, the Netherlands and the European Patent Office, and the two companies entered into a cross-licence of patents that impinge upon CSEM acquisition business. From the EMGS perspective, the Schlumberger deal clears the air regarding conventional marine CSEM surveys and leaves the company unchallenged worldwide given WesternGeco’s very limited interest in marine EM operations. EMGS has a fleet of five vessels – the BOA Thalassa, BOA Galatea and Atlantic Guardian plus the two former and now upgraded OHM vessels, EM Leader and EM Express – with operational experience in more or less every important offshore hydrocarbons province in the world. A new generation acquisition system for the fleet is in the works as part of a joint industry project with Shell.

Future tasks

EMGS sees as one of its future tasks to persuade E&P companies that CSEM surveys are not just ‘drill or drop’ operations, valuable as these might be. In its new business model, the development of multi-client 3D EM surveys using sparsely spaced receivers will play a larger part. The company has already been citing the success of this approach in recent Barents Sea licensing rounds where subsequent discoveries were borne out by the EM resistivity data. It is looking to further potential surveys in frontier areas such as the so called Grey Zone, off northern Norway, recently conceded by Russia.

The company has figured that improved multi-disciplinary approaches to quantitative interpretation opens the way for CSEM data to become an integral part of the whole life cycle of a reservoir, from delineation of wells to production monitoring. That was probably the objective of the joint project work with reservoir characterisation specialist Fugro-Jason when it became involved in EMGS a couple of years ago. Parent company Fugro loaned money which has now been converted to a near 15% holding in EMGS giving rise to constant speculation that it may one day make a takeover move. In the meantime, the EMGS stock price is rising on a wave of positive developments, and little is being said of the technical cooperation which is rumoured to have been terminated.

EMGS is also working on non-DHI (direct hydrocarbon indicator) applications as a further extension of the brand, eyeing structural geology objectives, for example, mapping subsurface resistivity features such as salt and basalt. Combining magneto-telluric (MT) methods would be part of this project scenario. Whereas 3D CSEM surveying uses a high-power EM source to create a subsurface signal, the MT method uses natural signals generated from the interaction between the solar wind and the Earth’s magnetic field. Both EM methods use the same receivers.

Late last year EMGS undertook a multi-client 3D MT survey covering approximately 3000km2 in the More basin, Norwegian Sea, pre-funded by ExxonMobil. The key objective of the survey was to determine the thickness of basalt layers and the sediments below.

EMGS certainly seems to have plenty to celebrate on its 10th birthday, but there are always potential party-poopers of which the main candidate would be Petroleum Geo-Services (PGS). This year the company is scheduled to launch its much anticipated towed EM streamer and source configuration into commercial service following its most recent field trial in the North Sea last November.

If this proves to be viable, then a major operational advantage would be the lack of ocean bottom receivers which inevitably constrain the size and speed of surveys undertaken by EMGS. Another is that PGS will be able to offer a package of seismic and CSEM data acquired during the same project over substantial frontier or mature basins at much higher production rates and lower cost (how much lower remains to be seen). Initially the PGS towed EM system is only rated to operated in 400m water depths and will only deliver 2D data, so this might limit the market for the service. We will learn more when the formal introductions are made at this year’s EAGE annual meeting in Copenhagen.

It seems unlikely that EMGS will lose too much sleep over the PGS initiative. It will take some time to have the system fully commercialised and the market for the service has still to be established. There are also those geoscientists, with no axe to grind, who say they will be very surprised if all the technical challenges of a towed EM streamer have been solved.

There is another scenario which would make an abrupt change in the company’s outlook. Assuming that EMGS can take its projected annual revenues from around $100 million to a planned $500 million by 2015, the company could well attract the attention of a bigger player. Up to now the rollercoaster ride for CSEM would deter most investors, but a more stable market ahead for the technology might bring a bid to the table. Any of the major contractors could easily afford to add EMGS to their portfolio and support a much faster advancement of the technology possibilities. For EMGS stakeholders that would presumably be further cause to celebrate! OE

Categories: Geoscience Geophysics

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