Andrew McBarnet reviews some of the history of Norwegian marine seismic ventures to assess the aspirations of the latest entrant into the market.
The launch of yet another Norwegian-inspired company dedicated to making its mark on the marine seismic business is so déjà vu. Yet here we go again.
A new company called Dolphin Geophysical is out there bidding to be the next big thing, and superficially at least it has made some impressive progress. In part this has been at the expense of another Norwegian company which was launched with equal fanfare a few years ago and is now on the down escalator – well actually it just went bankrupt.
It's hard not to be a little sceptical about any new Norwegian seismic venture. There have been so many start-ups in the past decade, headed by a cast of characters who, more or less literally, jump from ship to ship. Arguably none has lasted long enough to have established a secure position in the marketplace; those still standing are not completely steady on their feet.
Some have simply fallen by the wayside. We can place in this category Scan Geophysical. Its bright idea was to order three seismic newbuilds from a shipyard in India. This was at the peak of the last cycle in the demand for marine seismic surveys when all European yards were overflowing with orders for new capacity to cash in on the boom. In the event, managing the construction at a yard so far from home and unaccustomed to building this type of high-tech vessel proved too challenging. The company could not maintain its other modest operations in the face of mounting upfront costs, a chapter of problems in India, and investor impatience – game over. The ill-fated vessels have never seen the light of day as seismic units, which in an era of chronic over-capacity may be the only positive outcome of an unfortunate episode.
Just last month another of the current generation of Norwegian marine seismic wannabes – Bergen Oilfield Services (BOS) – had to declare bankruptcy. The company had been led by Karstein Rød, previously founder and at one point CEO of Multiwave Geophysical, a previous start-up which eventually ended up with CGGVeritas when it was bent on rapid expansion of its marine seismic fleet. Rød and others had the opportunity to start again with Bergen Oilfield Services which had three vessels in operation when it went down. Two of those vessels have already been reallocated to new kid on the block Dolphin Geophysical, such is the incestuous world of marine seismic business in Norway. However, the cautionary lesson from the BOS experience seems to be that it is very difficult to compete over the long term in the worldwide market for marine seismic with a small fleet: mobilisation costs alone make the seismic vessels uncompetitive if any great distance to survey locations has to be travelled, and there are none of the economies of scale in crew and equipment that benefit the larger operators.
This is why there is an ongoing sick list of companies fighting for survival and another list of those who still have to prove themselves with their investors. Currently at the top of the dangerously ill has to be Reservoir Exploration Technology (RXT) which has been in and out of hospice care in the last two or three years. Founded by Mike Scott, a highly successful partner in the management of Petroleum Geo-Services (PGS), the company was convinced it could defy the odds and make a go of providing a specialist ocean bottom survey service. The idea was that the high resolution multi-component data possible from such surveys using technology from ION Geophysical would appeal to oil companies. It began with a flourish and expanded to a vessel count of five for a short period.
The main issue for a highly leveraged company has been the high operating cost of OBC surveys and the need to keep a healthy backlog, so that today RXT is hanging in with one or two units readily available. The downturn in seismic demand did not help but the benefits of OBC continue to leave oil companies unconvinced: it is seen as valuable technology for niche applications, for example surveying reservoir targets around obstructions. But its potential for use in 4D seismic monitoring has been negated by the cheaper towed streamer alternative which oil companies tend to settle for even if the results are not quite as impressive.
In addition, the use of seabed receiver nodes is proving serious competition to OBC, now offered by specialist companies such as Fairfield Nodal and SeaBird Exploration.
RXT's continuing struggles are a painful lesson in marine seismic entrepreneurship, in this case the result of an overly optimistic business plan and underestimating operating costs. One can name several other Norwegian-influenced companies which still cannot claim a clear bill of health. The small Reflect Geophysical outfit based in Southeast Asia, for instance, does not appear to be making its mark in the market as it had hoped.
Then there is SeaBird Exploration. It started life in the late-1990s and has been operating a fleet of eight vessels, mainly for 2D seismic and source work, but does not seem to make money. From the outside the problem appears to be that 2D seismic is a low margin business almost completely shunned by the major players who concentrate on the much more profitable 3D seismic business. TGS alone has a successful formula for regular 2D seismic based on its multi-client model.
To its credit SeaBird has tried to break the mould. In 2006 it took over SeaBed Geophysical, the Norwegian company which carried out the first node-based seabed survey. With the subsequent construction of the purpose-built Hugin Explorer, SeaBird has developed an ocean bottom node-based seismic service with clients such as Total, BP and Chevron working off West Africa and in the Gulf of Mexico. Even so the financial results of the company are less than rosy with rescheduling of debt payments a feature. In a recent move the company agreed to give PGS exclusive rights to offer SeaBird's autonomous seabed recording technology at market terms in Brazil in solutions combining ocean bottom nodes and streamers. In return SeaBird will gain access to PGS' extensive worldwide marketing network and geophysical expertise and the parties say they intend to explore further areas of cooperation, such as data processing and use of PGS GeoStreamer technology on SeaBird's 2D vessels. In relation to the agreement, SeaBird will issue a five year convertible loan of NKr240 million directed towards PGS. SeaBird clearly hopes this will provide a steadier flow of work for Hugin Explorer which is something of an anchor on the company when inactive. But of course it means that PGS is now into the company's node technology.
Further proving the difficulties for smaller marine seismic outfits SeaBird has also linked up with Spectrum in a deal designed to help each other out. Spectrum, originally based in the UK, had a long, somewhat low profile history in the seismic business as a data processor and multi-client survey specialist. It got swept up in one of the waves of Norwegian seismic investment enthusiasm, was taken over for a while, and is now back more or less to its original business, with a twist. It has declared an intention to become a serious contender in the multi-client industry, basically on the TGS model with no vessels on long term commitment.
In the new agreement SeaBird is guaranteed by Spectrum a minimum of $23 million over a period of 36 months of future 2D multi-client seismic acquisition in return for a re-let of Spectrum's single vessel GGS Atlantic on a bare boat charter basis until 2012, which frees it of the commitment for a while. The basic effect is that Seabird adds some backlog for its 2D fleet and Spectrum is released of its vessel commitment.
This brings us to the most recent and conspicuous newcomer in the field before Dolphin Geophysical leaped onto the scene, namely Polarcus. In a way both companies fall into a category that raises legitimate questions about the real motivation behind many of the start-ups of the last decade or so. There is no doubt that some of the companies that have emerged look to have suited Norwegian shipowners with vessels to market more than anyone else. Some companies have existed for such a short period that they appear to have been vehicles created for the sole purpose of being taken over: nice work if you can get away with it.
Multiwave Geophysical and Wavefield- Inseis are examples of companies that never really made it to profitable fruition before being taken over, in both cases ultimately by CGGVeritas as it plotted to be the major domo in the marine seismic market by acquiring rather than building new vessels. To be fair, Multiwave probably could not have predicted that it would be taken over by a Rieber Shippingbacked company called ExRe and then sold on for a major profit less than a year later. But as we have seen small units are vulnerable.
On the other hand, Wavefield was listed on the market after a very rapid fleet expansion; in this case the management would have been well aware that predators might pounce given the demand for vessel capacity at that time. And so it proved with TGS, Fugro and CGGVeritas all piling in. In retrospect the company miscalculated in not accepting the original TGS bid because CGGVeritas bought the company at almost half the price Wavefield had been offered the previous year.
During the boom period the most spectacular coup was carried out by a company which was so short-lived its name may well have been forgotten already. Eastern Echo announced it would start from scratch by building six ultra modern seismic vessels using the new Ulstein X-Bow design. Without seeing one vessel in the water, the company was bought lock, stock and barrel by Schlumberger as part of the renewal programme for its WesternGeco fleet. They say timing is everything, and it worked for Eastern Echo. From the get-go it looked prone to acquisition by one of the major players if only to book shipbuilding capacity at a time of scarcity.
As we all know, there was no attempt to prevent the core management of Eastern Echo starting up again with almost exactly the same vessel building plan under the new name of Polarcus. The big difference is that the company was launched after the last boom so there could be a much lower expectation of being bought over. Major players such as WesternGeco, PGS, and Fugro had invested in a number of newbuilds, so were not in the game anymore. Only CGGVeritas was short on new capacity having bought older fleet units through the Multiwave and Wavefield acquisitions; however, it has now added two new vessels.
This makes Polarcus appear to be in for the long haul, which is what the management have said from the start. In a sense the company was bold to enter the market when there was – and is – lingering over-capacity. Such a big upfront investment in vessels has put huge pressure on the company to win backlog. Two key factors should work in its favour. First, its vessels are modern, which was not the case with previous start-ups. This is important because the renewal programmes undertaken by the major players means that the bar has been raised in terms of oil company performance expectations from seismic vessels. Second, the company has gambled on gaining quick critical mass. In other words, having some eight stateof- the-art vessels at its command will allow Polarcus to mix it with the big boys worldwide on a competitive basis. This was of course not possible for a company such as BOS with only three vessels.
Which brings us back to Dolphin Geophysical. From nothing it has surfaced with five vessels in the space of six months, which is even quicker than the growth of Wavefield a few years ago under the same CEO, Atle Jacobsen (who was also involved with ExRe). It is already effectively a listed company as it is a subsidiary of a Norwegian IT company on the Norwegian Stock Exchange. The suspicious might be wondering where this may lead, especially given the Rieber Shipping connection, which is a story in itself.
After its involvement with the successful Multiwave/ExRe sale to CGGVeritas, Rieber put together Arrow Seismic to cash in on the demand for new vessel capacity at the time. The company was initiated with some existing vessels which Rieber managed plus plans for the building of five new ships in Spain. Arrow Seismic was almost instantly acquired by PGS in a very handy deal for Rieber. Subsequently the Spanish yard failed on some of its obligations compelling PGS to cancel some of the vessels originally ordered by Arrow Seismic. At the end of the day, two vessels were left uncompleted at the shipbuilder. Who should step in, but Rieber. It bought the two vessels (in the name of Armada Seismic), most likely on the assumption that one of the major contractors would charter them. When this didn't transpire,
Dolphin Geophysical supported by newly raised investor capital emerged to do a deal with Armada Seismic. Dolphin has taken immediate possession of Armada's newbuilding 532, which was to be upgraded to a capacity of 14 streamers before a five-year charter agreement with Dolphin. Armada's newbuilding 533, still under construction at the Factorias Vulcano in Vigo, Spain, will be delivered to Dolphin next year with a three year charter. In both cases Dolphin will have options for longer charters on the expiry of the initial agreements. In addition Rieber's 2D/ice vessel Polar Explorer was due to start on a 12 month charter agreement with Dolphin from January this year with options to extend by up to four years.
For Dolphin to be able to begin its marine seismic contracting enterprise with two new vessels is clearly a big plus, while Rieber must be happy to have found a home for its vessel purchases and a spare 2D vessel. Dolphin's subsequent decision to take on two of the three bankowned vessels made available as a result of the collapse of BOS has surprised some. The former 3D vessel BOS Arctic (now Artemis Arctic) and the 2D vessel BOS Atlantic (now Artemis Atlantic) are not top of the line vessels. However, Dolphin took them over with existing backlog to complete while seeking further work for the vessels which are on time charter commitments: five years for the Arctic and four for the Atlantic.
Dolphin has already won its first contracts and also recruited some industry heavy-hitters for its management team, so it is certainly going through all the motions of building a serious marine seismic company. It is also the case that its entry into the market does not have much effect on the overall vessel availability worldwide. However, further growth, if that is the aim, will either have to come from building new vessels which would necessitate a great deal of investor confidence or from acquisitions/mergers.
Both scenarios will write the next chapter in this very Norwegian saga. OE