with Darci Matos, Vice President – Latin America, Geokinetics Brazil
Geokinetics was initially based on the North American market before incorporating Grant Geophysical in 2006 which brought on international operations. More recently – in February – the group incorporated the assets of PGS onshore globally. I was wondering if you could speak about the consolidation of the Latin American efforts and what it means for the group globally.
PGS had some spots internationally that were of interest to our company, one of which was Mexico. Despite entering Brazil just a couple of years ago they decided against continuing operations here. Moreover, PGS was in other places across the world but particularly strong in Mexico, Alaska, and North Africa. The combination of both companies brought to the industry the biggest company involved in onshore and ocean-bottom cable (OBC) data acquisition. As OBC involves offshore up to 300 meters of water, we are not in the deepwater business in Brazil. Through this acquisition we doubled our asset capacity and we put our faith in markets where we did not yet have a presence.
Personnel were another factor to consider: they had people and experience which is now part of our group, plus technology that now is making the perfect synergy between both companies.
The combination of PGS Onshore and Geokinetics in Latin America strengthened our position in the region.
So, for the industry and for our clients, we have a much broader set of technologies, more equipment, and more experienced people. It’s going to be very beneficial for the industry.
You mentioned two interesting things there: both the synergy with PGS and the offshore opportunities. In Brazil in particular the attention here is because of the deepwater. How attractive is the onshore market? What is it about Brazil that is attractive for you?
That is right. The bulk of the investments go to deep water exploration and production. The E&P onshore is mainly comprised of small to medium size companies and Petrobras, who continues to allocate important portion of their investments into onshore exploration, with five locations: Amazon, Rio Grande do Norte, Sergipe/Alagoas, Bahia, and in Espírito Santo.
In addition, since a couple of years ago, ANP has started investing heavily in the onshore basins with plans to invest around $100 million per year in seismic in so called new frontiers basins. While we speak ANP is conducting a bid process for two projects in Amazon and Acre basins. Last year three other projects were bid: Parecis, So Francisco and Paraná basins.
Geokinetics has two crews in operation in Brazil; one is working for Petrobras in a four years contract. The other one was working for ANP, finished the So Francisco 2D project and is mobilizing for other client in Potiguar Basin. Furthermore, there are 5 bids outstanding in the market which award should come within the next few weeks. Petrobras has plans to bid at least three more projects till the year end.
The onshore business right now is not as big as the offshore, but when you compare the investment in seismic acquisitions onshore with offshore, they are pretty much the same size. One quick look at the offshore business you notes the majority of the investments are for drilling, development and production, not seismic.
Geographically speaking, how much of Brazil is really charted? It’s clearly a massive area and there seems to be only a few key spots onshore right now that are really targeted.
There are five or six basins that are the subject to oil exploration, including the Northeast basins that are well known as is where the onshore oil comes from today.
In addition, there is the Amazon basin which is one million square kilometers or bigger than the majority of the countries in the world. Clearly, there is a lot of oil and gas in that part of the country but since it’s in the middle of the jungle it’s very difficult to explore. This region alone contains enough gas to supply the whole Latin America for many years. However, to extract that gas and put it in the market for consumption is challenging even with the new technology available. These challenges are why no one knows much about the region. But the production potential is pretty big if it becomes feasible.
Paraná Basin is another million square kilometers that still remains to be explored, because all of the attempts made there have not worked out. The big challenge today is to find new technology to get quality seismic data beneath the basalt cover.
There are also, several other small interior basins which soon or later will be subject of oil exploration.
What would you identify in the local market as your flagship operation? What project would you say is really indicative of your operations and your capabilities?
Out of the actual sites where there is production, the Amazon is always the hottest one. Petrobras is producing from Urucu Oil Field, as I said before, ANP is in the bidding process for two seismic crews, other new oil companies are in the start process of bidding seismic survey too.
But also the most complex?
True, but Petrobras has large experience of oil E&P in Amazon. The Urucu oil field was discovered in 1986 and, since then, has continuously contracting seismic projects. All the others are really at the very beginning indicating the oil & gas exploration will continue in the region for quite some time.
ANP needs to investigate on a regular basis the new frontier basins, otherwise no new oil fields will be discovered in Country. Paraná Basin is one sad example of this. The exploration there has been erratic; depending on the wish of one or other manager to do some work there. Now, it looks ANP is seriously starting a campaign in the area in order to have a real understanding of the basin.
Other important point is that ANP now is getting closer to the industry, listening more before deciding where to put the projects. It allows the industry experts contribute with their experience.
Geokinetics is a leader in the onshore segment and has a lot of great technologies. Which would you say are most applicable to the local market here? What would you say is most in-demand out of what you can do?
In seismic acquisition, the main question is: what source to use? There are three sources available: explosive, which is widely used in Brazil; Vibrators that are comprise of heavy off-road vehicles with complex vibrating equipment on the back. The vehicle with the equipment weights around 30 tons. For a 2D seismic crew its required minimum five units, for a 3D seismic crew, normally 12 are used. Those equipments require an open and flat terrain to move. Brazil, because of its characteristic of hilly terrain and heavy vegetation all across the country, becomes too difficult to operate with those machines. Other source that can be used are the thumpers, used only a few cases, mostly to infill seismic lines where no other source can be used.
Another critical detail in seismic acquisition is how to design the survey which is where technology and the knowledge are most important. Geokinetics has an R&D group investigating new techniques of survey designs improving the quality of the geological & geophysical information to our clients. Those designs are customized process, combining all the information from the area. Normally the survey design is done teaming up with the clients. It’s unique and it’s very rare the cases where the same design can be used in other location. So, responding your question, equipment can be bought off the shelf, the technology lays in the know how.
The Brazilian market opened in 1997 yet today Petrobras still produces over 95% of the oil that comes out of the country. Moreover, as you mentioned earlier, on the onshore segment there are a lot of small and medium-sized operations coming up. As you sit at the top of the value chain that there are more international operators coming in and getting exposure in the industry? Is the dynamic changing?
You can see some movements in the direction such as Shell buying some blocks in the So Francisco Basin, and British Gas in partnership with Petrobras in some interior basins. For sure changes takes its time, but can be perceived already some interests in onshore basins.
So today who are the people demanding your services the most? Is it just Petrobras or are there others?
Petrobras is our biggest client, and ANP is now in the middle of an important plan, investing big sum of their budget in an annual basis in onshore basins, aiming to have more knowledge of what is laying in our underground.
Also, we have performed small seismic surveys, either 2D and 3D for many small companies, which are important portions of our annual revenue. We don’t neglect any of our clients. They are equal important, small or big companies.
Due to the external investment environment many project evaluations have been fairly conservative as people contemplate how much they can get out of a certain reserve. As such, a lot of the seismic industry has had a hard time getting the contracts at the same rate that the market saw a couple of years ago. Has this been the same case in Latin America, and particularly Brazil since this has been seen as a very hot market?
Brazil is a particular market once there are several local companies that opened up claiming to do seismic very cheaply and whom we obviously have to compete against. So, we have observed pressing from our traditional clients to practice the same prices than the small seismic companies. Such pressure comes mainly from small and medium size companies. Nevertheless, for large, high-tech projects, we are preserving our revenue, without much of a problem. For small projects or when we are working with ANP, we have to be very careful, as there is always someone less experienced that can come and say he would do it for less. In a public bidding scenario, the price is everything.
In order to stay ahead and compete with the best, you have to have the best technology. How do you develop this edge and keep going in an industry that has been around for quite some time?
Knowhow is people, not equipment: you cannot look at a piece of equipment and say, “that has knowhow.” This means that people are our strength.
If you have a company that is financially well-structured and you have the people to do it, the equipment can be bought on the market. We have some proprietary technology in OBC where we are the leader worldwide utilizing cutting-edge technology.
In the onshore market, there is nothing you can do to diversify yourself from a technological perspective because anyone can sell the equipment to whoever has the money to buy it. Yet, when you put it into the field, you have to have the right people to do the work. That’s what we have. Today we have probably the most important brains in the business both in terms of know how and scientific investigation.
As Brazil rises in the oil world, do you see more of these important brains coming out of here locally?
All of the leaders of the industry have a centralized head office so we use a matrix structure based on geomarkets and product lines. The top brains are at headquarters working on the product line and at the center of each geomarket are people like me responsible for developing the business within a region and bringing in specialists to do so when we need them.
For instance, an expert in OBC, I have one but he is not sitting here: he’s in Houston. I’ll make a plan and bring him here for a period of time either for a project or consultancy. Whenever they finish the job here they can move on to meet the needs in Malaysia or wherever else there is a viable project.
There is also a core group here in Brazil, who is valuable to local business development. This means I have a team who brings a lot of experience, and when there’s a project, I give it to them along with the necessary resources, cash and equipment, for them to perform the necessary tasks. When we need those brains at headquarters they come down and teach the local team or whatever is required.
Our core teams can be moved as well, for example, to Argentina, Bolivia, wherever else. In Latin America there is a set of about 60 to 80 key staff members, which can move to the required destinations.
With the best people, some of the best technologies in the industry, and of course a growing Latin American business. Where do you want to take this in the next five years in Brazil and also in Latin America?
There are two stable markets – Mexico and Brazil – giving us two spots to form the base for Latin America. On top of this we have satellite markets such as Bolivia where we are very active due to the government decision to invest in exploration and production. These markets go for a period of time, then gets dormant for other 3 or 4 years before returning the investments.
Peru is another hot spot at the moment there where many projects coming up. At the moment I cannot say how long it will go but Peru will probably be stable for a long time based on the way the government is developing the petroleum industry. It’s a long cycle, which takes ten to fifteen years. It means the market is going to be active for at least that period of time.
Other countries like Ecuador just have one project every other year meaning nothing really significant. We made the decision to stop working in Colombia but we would like to return at when possible. Additionally, we are also starting operations in Trinidad &Tobago, which is challenging but there we are.
All things considered, our operations have been based in Brazil and operating nonstop since 1940, under different names. That is 70 years of operation and I can tell you that we will be here for other 70 years!