with Stein Ove Isaksen, Senior Vice President Eastern Hemisphere, TGS Norway
TGS has played a pioneering role in the development of the global multi-client market since the early 1980s. Looking at the development of this market today, how much has the oil and gas market shifted towards this model of seismic surveying?
The oil & gas industry has come a long way over the last 30 years toward accepting the multi-client model to the extent that it is now the preferred approach to acquiring seismic in many hydrocarbon basins. Since seismic surveying was first utilized in oil & gas exploration one can identify three successive stages, throughout which specialized seismic companies have assumed an increasingly important position.
In the initial stages of seismic surveying, it was many of the oil companies themselves, which held in-house competencies for conducting seismic shoots. These oil companies owned their own seismic vessels and land crews and controlled the entire seismic value chain from survey to imaging and interpretation. In the 1960s and 1970sthis model was still very common. However, maintaining seismic vessels and crews on the balance sheet was a costly endeavor. This model therefore gave way to the second stage in which oil companies predominantly started to outsource surveying to specialized seismic companies.
The next couple of decades were the era of contract seismic in which oil companies continued to identify prospective areas for E&P operations, but would pay a seismic company to conduct the seismic survey. With the job of surveying being taken over by specialized seismic companies, the oil companies were able to focus on their core activities of exploration drilling and production. At this stage, the competition between oil companies rested on which one had the better seismic data assets. Consequently the contract seismic model continued to restrict the overall access to seismic data to the companies commissioning seismic surveys. From the perspective of governments seeking to attract new oil companies to conduct E&P operations in unexplored areas this was not an efficient model and for the oil companies themselves, it was still an expensive process, because despite having removed the vessels and personnel from their balance sheets, they were still alone in funding the costs of the seismic survey.
Over the last two decades the industry has started to transition from contract seismic to the era of the multi-client survey. In this model, seismic companies are the ones identifying prospective areas for seismic operations. The seismic companies will frequently conduct seismic surveys with only a part of the cost underwritten by oil companies and so will be exposed to financial risk (the level of which will vary depending on the proportion of oil company commitment obtained). In this system, the profitability of seismic companies is fully dependent on the attractiveness of the data they generate and the number of oil companies that are willing to buy these data. When the model functions correctly and depending on the attractiveness of the data, a seismic company can potentially earn a lot more from a seismic survey since they have multiple buyers.
From a governmental perspective, under the old system of contract seismic, they would have needed to contract out seismic surveys at their own expense. With the multi-client model governments can simply allow multi-client seismic companies to take on all the risk and costs themselves. The fact that data generated from seismic surveys is no longer the exclusive property of a handful of oil companies encourages competition. As a consequence of this model, governments are now better placed to open up unexplored frontier E&P areas for oil and gas licensing rounds, providing a stimulus for investment from oil companies.
Finally, the oil companies themselves also see a benefit, as they are no longer taking on all the risk for commissioning seismic surveys. From an operator perspective, the cost of obtaining data is reduced with the financial costs being spread among multiple buyers. However, this model changes the nature of competition between oil companies, which no longer compete over the data itself, but over the interpretation of the data. The same data is being made available to several companies at the same time and the competition between oil companies has moved to the level of hydrocarbon play analysis with greater emphasis now being placed on processing and imaging as well as having the best people to interpret the data.
In my view, the multi-client model is an excellent economic example of a win-win-win situation where every stakeholder (seismic companies, government and oil companies) benefits. Nonetheless, the multi-client model has a number of prerequisites for it to function correctly. The multi-client model, as the name suggests, relies on there being multiple buyers of the seismic data. The model therefore cannot function in monopoly-controlled markets dominated by one or two oil companies. Preferably you need at least a handful of buyers of the seismic data to make it worthwhile for the seismic companies to take the risk of conducting a multi-client survey. There is still a small number of markets where monopoly control over production continues to make the multi-client model unprofitable. There are also a few examples where governments seek to restrict international knowledge about the resources that they have and therefore prohibit the multi-client model. However, both situations are becoming much more the exception than the rule as time progresses.
Formerly, TGS in the US and NOPEC in Norway were the two companies, which pioneered the multi-client model from the early 1980s. Their main areas of operation were the Gulf of Mexico and the North Sea respectively and these are the areas today where the multi-client model is most advanced. In 1998 the two companies merged and created the world’s leading multi-client Company and TGS continues to lead the multi-client model today.
In the past, oil companies once criticized multi-client surveys for providing lower quality seismic data than traditional contract seismic. What is the situation today?
In the very early years of multi-client surveying, it may be true that the data produced was inferior to that produced by contract seismic managed by an oil company, but this is no longer the case today. Today, multi-client surveys are a sophisticated and high-tech product, fully capable of matching any product from contract seismic. In fact, in a study done recently by Wood Mackenzie, multi-client data has been shown to lead to a greater number of exploration wells. In this study, two frontier areas were identified: multi-client surveying covered one area and one was covered by traditional contract seismic. These two areas were then compared over two decades of exploration drilling and showed that in the area covered by multi-client, the number of exploration wells was significantly higher.
The results also revealed that multi-client surveying had produced 10 times more seismic data than the area covered by contract seismic. This is largely because in the contract seismic model, oil companies are seeking to minimize their expenses on seismic surveying. Therefore, when an oil company makes a discovery following a seismic survey campaign, they have a tendency to high-grade the assets early and perform minimal additional surveys in the immediate area around the discovery. In the multi-client model the incentives are the opposite. Multi-client seismic companies seek to maximize interest in their data by covering as wide an area as possible and producing as much data as possible.
One other important aspect, which makes multi-client a good alternative to contract seismic, is the efficiency of the surveys. Because multi-client surveys are conducted by one company, which coordinates vessels to cover the entire area, they can avoid a situation where areas are being surveyed repeatedly by several companies.
With seismic companies now acting as the ‘basin hunters’, how has this changed the nature of your work?
Multi-client seismic specialists are required to think a lot more like oil companies or at least frontier explorationists, than those conducting contract seismic. We can no longer just focus on the subsurface; we now have to take into account a wide range of other non-seismic factors. As a result, we need to have the business skills to assess the market potential, commercial approach and risk factors in conducting seismic surveys across multiple jurisdictions. Probably the biggest change in our thinking is accounting for political risk. We need to assess new factors like the stability of a country, relevant legislation and the general maturity of the local oil and gas sector.
These changes in the nature of the company also require that we think differently about whom we recruit. It is not enough to simply employ talented geophysicists; we must also have people with strong commercial judgment.
TGS is now diversifying its services into processing and permanent reservoir monitoring (PRM) with the acquisition of Stingray Geophysical Limited. What is driving this diversification?
As we see it, the processing industry is very different in nature to the marine acquisition segment. Whereas marine acquisition is largely a commodity market with many suppliers offering highly competent services, processing is a segment with very rapid technology development and which is very people dependent. TGS has not been satisfied with what the market had to offer both in regards to quality and turnaround time, and therefore, around eight years ago, we made the decision to develop our own in-house processing capabilities. Technology in this area has been developing quickly and we wanted to remain at the forefront. The processing cost represents less than 10 percent of the overall project cost, but it is has a crucial impact on the final results, hence it is crucial for TGS to control this part of the process to assure superior quality and service to our customers.
As a multi-client seismic company, our activity has mainly focused on the exploration part of E&P. By investing in PRM (or 4D seismic) we diversify into the production side of the business. Recovery factors in produced fields are still remarkably low resulting in significant amounts of hydrocarbons left in the reservoir when a field is abandoned. We see PRM as enabling increased production and recovery at lower cost and risk over the life of a field through improved reservoir management strategies. By investing in this technology we are able to follow the development of a basin from the multi-client shoot, through processing to identification of potential plays and ultimately maximizing production and recovery from hydrocarbon reservoirs.
PRM technology has advanced a lot in recent years and TGS believes that fiber- optics are the way forward. Whilst this is still an emerging market it is generally recognized that as global reserves fall and companies seek to squeeze more out of their existing assets, the application of PRM technology has considerable potential.
TGS was the first mover in the multi-client market but how do you expect the company to be positioned as other companies build their presence in this space over the coming 5-10 years?
There is no doubt that TGS will maintain its leading position in multi-client seismic segment given the scale of the data assets that we have already built, our experience in this field, our strong relationship to the oil companies combined with highly qualified and motivated employees and a strong company culture. The multi-client industry is growing fast and with current oil price forecasts, the market looks set to continue its growth. The major oil companies have recognized their previous lack of adequate reserve replacement and now see the need for new exploration. Given our asset-light approach, TGS has no difficulties in scaling up to the needs of the industry and we expect to see strong global growth for our product in the coming years.