with Rick Dunlop, Geokinetics
Geokinetics is clearly a global player in the geophysical industry. With most of the company’s core markets in the Americas, could you outline for our readers the significance of the Eastern hemisphere to the group as a whole?
Geokinetics did not have an international presence until the Company acquired Grant Geophysical in 2006. I was with heritage Grant Geophysical at the time of the merger. Grant Geophysical was active in the eastern hemisphere, and despite having limited revenue, the regional headquarters was re-established in Singapore in 2003.
Since 2003, Geokinetics’ Eastern Hemisphere operations has grown from USD 20 million in revenues to over USD 200 million in 2009. We have enjoyed significant growth over the past six to seven years in the region and we expect that growth to continue next year. The company’s ability to manage operations in the Eastern Hemisphere from Singapore is a key advantage.
What factor led the company to choose Singapore as a base for operations?
I chose Singapore as the base for eastern hemisphere operations after lengthy discussion with the CEO. At the time, I was based in Houston and I had a choice between establishing operations in London, Dubai, or Singapore. In my opinion, these are the main locations where a regional headquarters could be established.
I chose Singapore primarily because of the high standard of living here. Singapore benefits from strong levels of local infrastructure and is a rich source of local talent. Probably the largest factor was Singapore’s close proximity to other countries in the region, specifically Africa as it is not much harder to reach Africa from here than from London. Furthermore, London clearly has drawbacks in terms of the cost of living and high levels of taxation and problems even extend to the difficulties of travelling to and from Heathrow Airport.
Dubai was potentially another reasonable alternative. The company already had a representative based in Dubai and it was a difficult decision between Dubai and Singapore. The Company wasn’t necessarily focused on the opportunities in the Middle East at that time, but we were focused on opportunities in Asia due to our expertise and established relationships in the region, so the getting closer to the Asian market made sense, and therefore Singapore the logical choice. Additionally, the standards of living and security which Singapore enjoy made the decision that much easier.
Looking at the region, we cannot ignore the significance of national companies such as Pertamina and Petronas. NOCs still control 94% of the world’s oil and gas reserves. When we spoke with Darci Matos in Brazil he mentioned that regardless of their size all the players are equally important. How do you see the role for these large NOCs in the Eastern Hemisphere?
NOCs have and continue to spend a disproportionate amount of money on seismic compared to most independent oil and gas companies. NOCs are no longer confined to their own countries, becoming increasingly involved internationally. Petronas has a strong presence worldwide, Pertamina is also expanding and even India’s national oil company ONGC is moving abroad. These NOCs are a big part of the future and in my opinion will ultimately have the lion’s share of the industry.
Geokinetics aims to work increasingly with these companies in the future. The Company is fortunate enough to have solid working relationships with many of the NOCs. Geokinetics has worked extensively with Petronas, and we strive to develop this relationship further. Our goal is build on our existing relationships with the NOC’s, and to assist in their expansion throughout Asia and around the world.
One of the key benefits to working with the NOCs is the fact that they are less likely to reduce their spending compared to smaller companies. What is your perspective on this?
NOCs are more resilient with regard to the fluctuations within the industry. Their budgeting cycles tend to be more strategic and longer term in nature, but they are still susceptible to some of the same financial problems that many international and independent oil and gas companies face.
In a recent study by Barclays it was revealed that 45% of companies were investing money in new exploration. How has Geokinetics experienced this increase and have you seen particular regions picking up faster?
This year has been a relatively slow year for Geokinetics, however we expect to see a meaningful sequential improvement in our financial results in the fourth quarter. Our results during the first half of 2009 were strong relative to the second half of 2009 due to the longer term contracts we signed with various NOCs late in 2008.
The oil and gas industry as a whole is cyclical in nature, in particular the seismic sector. The U.S. market has improved over the past quarter and bidding activity internationally continues to be strong. Pricing in most international regions remains stable, and we believe that our margins will start to increase as utilization begins to increase. In the Asia-Pacific region, Australia would represent the real growth market for Geokinetics at the moment.
You have crews stationed internationally, but in an investor presentation in New York two months ago it appears that you do not have crews in hotspots such as Qatar and Russia. Can you explain why the company is not present in these regions?
The company made a decision a few years ago not to approach the Middle East markets aggressively as these markets are dominated by higher channel count vibroseis land crews that operate 24 hrs a day, which is expertise we did not possess. However, one of the reason we agreed to acquire PGS Onshore was due to their expertise in this market, so we are hopeful our activity in the region will increase. We currently have desert vibroseis operations in Libya and Algeria and going forward we will be more aggressively chasing this type of market. Our core expertise was and continues to be focused on transition zone (TZ) and ocean-bottom-cable (OBC) jobs.
The Russian and Caspian regions have always been regions of interest to Geokinetics. However, they are extremely difficult areas in which to operate, but we are very interested in the TZ and OBC jobs in the Caspian region. We have previously tried on occasion to enter this market, but have yet to be successful.
The acquisition of PGS onshore was a clear milestone for the company, and Richard Miles said that around $10 million in synergies would result from this acquisition. What proportion of this will be applicable to the Eastern Hemisphere?
The majority of the synergies are and will be driven by overlap and cost reductions at the corporate level; however, we are currently working on ways to increase our operating efficiency. In the Eastern hemisphere, there was virtually no overlap and it was a very harmonious transition process, particularly in the Asia region. PGS Onshore operations in the Asia region were in areas and markets where Geokinetics previously had no operations, such as Cambodia, and in North Africa, Libya and Algeria for example.
You have mentioned the ability to operate in diverse environments including the dessert. The company is able to do so and gain major customers such as the NOCs. What is the company’s secret to being so agile?
Geokinetics’ overall success is directly related to how well we can manage the logistics of operating in challenging terrains and mobilizing to the next job. In 2002 we were only a $60 million dollar company, but we had a global reach. This taught the company to be agile. Geokinetics had to be able to quickly relocate to different regions to better address the market. The Company’s ability to remain agile, even as a large company, continues to be one of our competitive advantages.
Geokinetics is a people oriented company. The employees are the Company’s main asset. We are fortunate that many of our staff have been with the Company for a long time, growing along the way. This group of staff has been the cornerstone of our business.
One of the key challenges we have observed in Singapore is the depth of the labour market. There is an issue in finding the right talent and ultimately retaining these people. How does Geokinetics succeed in retaining its key talent?
This problem exists in all companies, however Geokinetics has had good success in retaining its employees. There is a high degree of staff-loyalty, but it is hard to attract young people. Naturally the lifestyle choices for younger people today do not include living in remote and sometimes potentially hostile conditions. Geokinetics continuously attempts to canvass universities for specialist roles, and we have an active campaign of recruiting at university career fairs. The Company tries to offer attractive benefits to its employees, which include travel and rotational leave for field based personnel, However, attracting young talent remains a challenge because there are many companies trying to draw from a limited talent pool.
The expertise of Geokinetics lies in onshore and shallow waters. However, the industry is moving more into deeper waters and harsher environments. Is it a weakness for the company not to be present in this new activity and how can this challenge be addressed?
We do not see this as a weakness and have chosen to concentrate on our strengths. We are also able to address this market when necessary through partnerships with other companies with marine streamer capacity.
You say that the ability to achieve this economically is important. How crucial are cost considerations to acquiring projects for Geokinetics?
Naturally, cost control is crucial in our line of business. The company needs to provide a quality product at the best price. Most projects are awarded through a tender process, so pricing is very important.
In terms of your personal ambitions in the Eastern hemisphere, where do you want to take the company in the next five to ten years?
I aim to maintain sustainable growth in the region, consolidate and strengthen our position in our existing markets as well as expand our footprint into areas we are not currently active, such as the FSU region. . Additionally, we need to continue to find ways to operate more efficiently, which will ultimately allow us to be more profitable while providing our customers with a quality product at reasonable price.
One of the major challenges in the next five to ten years is that more and more work is targeting high-risk areas. Areas previously untouched for particular reasons are now being sought after and the Company is being pushed into these markets. Finding ways to operate effectively and overcoming the risks is very important in these markets.
Onshore, our operations are very labour-intensive and a typical seismic survey can cover several hundred square kilometres. It can also involve anywhere from of a couple of hundred to upwards of several thousand people. In high risk areas, managing these risks is a challenge. The Company needs to find ways to work efficiently in these environments to mitigate the associated risks.
Do you have a final message on behalf of Geokinetics about your activities in the Eastern hemisphere?
As a Company Geokinetics is well positioned to continue its growth and I fully expect it to be one of the leading if not the leading geophysical provider globally. Geokinetics will continue to maintain focus and specialization in profitable, high-potential markets.