Keeping a watch on over-supply

One or two recent asides from major seismic contractor bosses implies that they expect that the global seismic fleet to move closer to some kind of equilibrium next year where the supply of vessels is no longer so out of kilter with the demand for survey work. This is not entirely wishful thinking. The spending spree on new vessels has unquestionably ended. The remaining few units being completed will be out in the marketplace by early next year, while all the signs are that demand for seismic will continue to be healthy.

The current frustration is that prices continue to be depressed by over-supply. That situation will only go away slowly, but at least oil industry customers cannot be tempted by yet another shiny new vessel being offered at a special introductory price. Newer entrants into the market simply cannot afford to do business indefinitely in a low-price environment. For a start they are far more leveraged, sometimes precariously so, in terms of shareholders and financial institutions. Furthermore, compared with the Big Four (WesternGeco, Petroleum Geo-Services, CGGVeritas, and Fugro) which dominate the market, minor players do not often have a portfolio of services to offer beyond marine seismic acquisition to balance out the peaks and troughs of marine seismic activity. Bottom line: next year could see some weeding out of the vulnerable companies currently stretching the good will of their bankers and investors.

Litmus test
One litmus test of the mood in the marketplace may be the outcome of the ongoing saga at the Spanish shipyard Factorias Vulcano. For those unfamiliar with the history, Arrow Seismic, an investment vehicle of Norwegian shipowner and manager GC Rieber Shipping, ordered four new high end seismic vessels, two destined for WesternGeco and two for PGS. Construction had scarcely begun when PGS bought Arrow Seismic and in the process inherited the shipbuilding contracts, which went horribly wrong. Just last month PGS announced a reclaiming of money owed by the shipyard from its cancellation of the two WesternGeco vessels which were delayed in construction beyond contract. Meantime it has taken possession of its first order from the Spanish yard, the Apollo, which has been working in the North Sea, and the Artemis will also be added shortly to its fleet.

Rieber believes it has spotted an opportunity to profit from the Factorias Vulcano debacle, and has taken over the order for the two vessels at various stages of construction in Spain through a newly created company Armada Seismic in which it has a 65% stake. The move makes sense in that the company initiated the orders in the first place and is therefore probably best placed to pick up the pieces. It has stated that the vessels will better balance its fleet portfolio.

Rieber’s intervention now faces the challenge of finding a home for the two newbuilds with a seismic contractor. The climate is entirely different from 2007, when Arrow Seismic was put into play to make the original order from Factorias Vulcano. Indeed the obvious candidates to be interested in chartering the vessels – the Big Four marine seismic contractors – would frankly prefer if these units never set sail, given the current state of the market. Casting further afield, it is hard to think of a marine geophysical services company able to come up with the money and extra resources to take on these vessels. The best bet might be Chinese interests, for example BGP, which has made no secret of its ambition to become a substantive player in marine seismic and already has a small fleet in service. Another not implausible scenario might see TGS charter short-term as it did when Dubai-based Polarcus launched its first vessel.

Polarcus is in direct competition with Rieber in the promotion of brand new vessels. The Dubai-based company has not found its launch into marine seismic to be plain sailing: in a sense it missed the top of the cycle. The result is that there is no word from the company about whether it will operate the last two of six vessels originally planned to be built by Drydocks World-Dubai. Polarcus will only say it has first option on the 12-streamer Alima and the eight-streamer Selma due for completion in Q1 and Q2 of 2011 respectively. It has also had to make a significant adjustment to the fourth vessel order, the Samur, due out later this year. The original plan was to produce a six-streamer for 3D seismic surveys and operations as a source for wide-azimuth surveys: to many industry observers this seemed either a seismic vessel too small for most high resolution 3D projects demanded by oil company customers or an over-engineered and costly source boat.

The message seems to have got through because Samur is being upgraded to eight streamers to achieve what Polarcus expects will be a 25% increase in revenue potential. This coincides with the addition to the updated company presentation of a new technique called First Pass 3D, suitable for 6-8 streamer vessel operations. The concept is targeted at providing good value 3D seismic at a reasonable cost for frontier area evaluation where companies would normally think 2D seismic. To achieve this, the separation between 6km long streamers is 200m giving a spread of 1000-1400m. By contrast a more expensive high resolution 3D survey deploying 10 streamers of 6km length is only 900m. The upgrade is costed at $3 million, which is only a 2.5% increase in capital expenditure for the vessel. OE

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