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with Alex Vartan, Managing Director, Petroleum Geo-Services (PGS) Brazil

01.04.2010 / Energyboardroom

PGS recently decided to sell its onshore operations to Geokinetics. What is the impact PGS here in Brazil and what is the scope of business today?

PGS has made the decision to become a focused, marine geophysics company again. In the past, we had operated FPSOs and we decided to leave that market and similarly with the onshore division, it was seen as a part of PGS’ strategy to refocus on what we’re good at: marine acquisition and the deployment of our Ramform technology. It was a very important move for PGS and it means that we can really focus on our new technology here in Brazil.

Our GeoStreamer technology is another highlight that the company has been working on for many years to develop. Looking historically at streamer acquisition, the technology of the streamer itself has not really changed in 30 years or more. We’ve been able to co-locate a hydrophone and a geophone in the same cable, which means that we can deploy this cable at deeper tow-depths. In effect, oil companies can benefit from a better bandwidth of data with more penetration —great for the pre-salt here in Brazil— while we gain from greater efficiency because the streamer is deployed at a greater tow depth meaning we’re not shut down for weather nearly as often. For example, in some settings such as the North Sea or the Australian shelf, the improvement in efficiency can be anything up to 70%. It’s a real step-change in technology to not only get better data but to also do it more efficiently.

Weather makes sense as an issue in the North Sea; is weather really an issue here in Brazil?

Weather an enormous issue. Typically on a survey, as an industry we are shut down for maybe 40% of the working time out on the ocean. There comes a point when the wave-action on the streamers is too much to actually record data and you’re recording the noise of the waves rather than the seismic reflections.

Looking at the difference between onshore and offshore markets, Mr. Matos at Geokinetics pointed out that while the onshore market only represents about 25% of the activity here in Brazil, the amount of financing going to seismic studying from the ANP is about equal between onshore and offshore. What do you think is most attractive about the offshore market here in Brazil.

I think here in Brazil, the offshore market is more attractive in that it’s a more straightforward market. Yes, the investments are enormous, but the size of the fields and the ‘pre-salt play’ is enormous as well. It’s a simpler route through the licensing process and you do not have to work within host communities. Therefore, while it’s a greater investment, it’s also more straightforward.

The high-density 4D contract with Petrobras in 2008 was a quarter-billion dollars. At the time, Jon Erik Reinhardsen, CEO of PGS, commented that this was a big breakthrough for the company because it was not only industry-leading technology but also industry-leading design meeting one of the biggest markets in the world right now. To what extent do you think Brazil is a proving ground for the entire company’s technology?

I do not think Brazil is proving ground because the marketplace here demands the highest quality technology there is so companies do not see Brazil as a place to test new equipment. We’ve already proven our technology works.

It’s an enormous market, and the figures speak for themselves. The published spending for Petrobras on their E&P contracts is enormous which means companies see Brazil as a key business area including PGS. Brazil is a very important market that also presents specific challenges: the pre-salt is a very complicated regime to work.

The challenges we really face are in imaging and penetration issues, and if we can deploy new technology to get around those issues, then obviously we’ll do so. We shot a 2D GeoStreamer program here last August in order to highlight the technology to Petrobras specifically, but also to other companies. Later this year hopefully we will bring in a 3D vessel to shoot a 3D GeoStreamer program.

For PGS it’s a very important step for us to actually be able to demonstrate to our clients the improvement in data quality that is available to them without a vast increase in the cost of that technology.

You mentioned the wide scale investments going into E&P right now, especially from Petrobras but there is only a small portion dedicated to seismic acquisition. Moreover, there is a lot of attention here and competition in the market. How do you position yourself to make sure you get the biggest piece of the seismic cake?

It’s important to point out that 95% of the seismic that is acquired here in Brazil is multi-client data. Therefore, the onus is very much on the seismic companies to make sure they shoot that data in the right location. We have an extensive library of 3D data that we’ve acquired as well as access to an extensive library of 2D data. Before we acquire any new 3D surveys, we actually do our own G&G studies to assess the prospectivity of a specific area in order to decide whether we wish to shoot multi-client data there or not, because it’s really a long-term investment.

It’s important from our point of view that the governing bodies of the oil industry, for example the ANP, understand this long-term investment. We must have an opportunity to recover that investment, or things can become difficult for us. For instance, the lack of license rounds has been a major problem for the seismic industry. Additionally, the extension of certain expiration periods of blocks and the removal of some blocks from future license rounds—because of the pre-salt—has meant that a lot of the investments we made in those areas with the expectation of multiple sales within a ten-year period have been struggling a little bit.

As a multi-client library is very much at the heart of the business model here, how do you cope with these challenges?

Indeed, we have to find new and innovative ways of selling our library. For example, we have run two enormous depth migrations over the Santos area the first covered about 19,000 km², and the second is about 15000 km² in total. We have to deploy new technology and tailor-make that technology for specific clients which means as a company we have moved away from where we were ten years ago. Then we would say, “We’ve shot some seismic data, this is where it is, do you want to buy it?” Now we’re actually getting deeper into that data and performing more focused G&G studies that we can actually present as a story to the oil companies about prospectivity and hopefully increase their expectations and desire to license data in an area that they might not have looked at before. I think we are playing a much greater role as a seismic industry in promoting areas.

We had previously spoken to Ignacio Oruzco in Mexico, and he mentioned that in the face of the oncoming downturn that Mexico typically operates in a complete 180 from the rest of the geophysics industry. Sure enough, looking at the results from 2009, Mexico really powered through. Being another large Latin American market, and having a particularly different story because of all the attention here, what has the experience been like? Would you say it’s on par with the global downturn, or does it have its own features and particularities?

I think Brazil has ridden through the global downturn very well. I’m not an economist, so I can’t really comment too much, but certainly given the oil industry here, the pre-salt discoveries and Brazil becoming energy independent, it happened at the right time for Brazil. Whether that was chance or by design I cannot say but it has obviously been a very important step for Brazil and for Petrobras. Now we have a very small hiatus, for a year or two, until the regulations are changed, but then I think you’ll find that the international companies find a way to work within those new regulations and investment will continue.

There have been some companies stepping out of Brazil, such as Devon but for every one company doing that, there are two more eager to enter. Brazil has a very bright future for the industry.

The market itself has really had some particularities recently especially concerning the ANP and adjustment of operating structure. Should Petrobras become a more dominant operator what do you think the impact will be on geophysics companies in the end? Will it change the way you do business or will it still be business as usual?

I do not think anyone really knows but I’m hoping that it’s not “business as usual,” and that things will naturally change. Petrobras has always been our key client for as long as PGS has worked in Brazil in the past representing maybe 70% of our business if not more.

There was a shift in 2004 and 2005 when we started seeing international companies entering and they will likely continue to do so but obviously with the pre-salt, Petrobras will be the operator. However, there are enough stimuli for investment that it will continue even if it’s at Petrobras’ pace in the pre-salt. At the moment Petrobras is not struggling to raise finances to keep this development ongoing which leads me to believe that it will be a very exciting and fast-moving investment pace.

One of our other teams in Malaysia spoke with Guillaum Cambois last week, who is probably just as excited as you are about the GeoStreamer technology and being at the head of the industry. Of course, the organization comes from Norway and learned a lot from the very difficult conditions in Norway then applying that elsewhere. Today here in Brazil, do you see the opportunity to learn from the local environment and take something out of the knowhow here and apply it to the rest of your operations?

Absolutely; it’s a continuous improvement cycle in our business. We must continue to learn from all of our experiences worldwide, so in general what you find is that companies have regular technical meetings—and PGS is no different—when staff come in from around the world to share their experiences and discuss new applications for the technology. We discuss where it’s worked, where it hasn’t worked, and what we can do to improve our efficiency.

There’s plenty that we can learn from here. Petrobras is one of the most experienced – if not the most experienced – deep-water operator in the world. Therefore, we must continue to present our technology to Petrobras but also to understand their needs in return. What can we develop as an industry in order to overcome some of the problems that they have? That was really a key point in the GeoStreamer technology: it’s very applicable here in Brazil, specifically within the pre-salt. The proof of that pudding will be in the eating.

Once you start being able to show the results of a technology, then companies will start to make use of the vessel being here to build a series of projects stacked up behind the first.

With other companies we’ve met in Brazil, both within and outside of the geophysics sector, HR and finding talent is a serious issue in Brazil. How do you handle that issue here? How do you make sure you have enough people to grow at the same pace that the industry is growing?

Training. I think its key that we continue to invest in our people. For example, we take on a number of graduates, and many of them are trained either in-house in Brazil or we send them abroad to one of our other offices. Furthermore, we have exchange training programs, so we can take young graduates who have been for PGS for a year or two then send them to spend a few months in Oslo or in Houston.

There are just not enough geoscientists graduating—specifically here in Brazil—to fill those roles. So for a young geoscientist entering the market, it’s a great place to be. They have a very bright future working for Brazilian companies.

Would you say this is part of a social responsibility as well, with being in the market here you have to likewise train the local market?

Absolutely; there’s a very strong push from ANP to develop local content. Today, every new survey that we acquire we have to go through a process of local content certification. It has been a learning process for us and for the oil companies as well.

I think that in PGS’ longer-term strategy, we saw this requirement coming for a number of years. We’ve developed a genuine processing center here, staffed with Brazilians while our machines were bought locally in Brazil. Brazilian taxes being what they are that cost us a little bit more money but in the long run it meant that when this certification process came into force, we could quite genuinely say, “100% local content.” Our processing certificates prove that.

It was purely because of the long-term vision of the company that we chose that route. We have a very low level of international staff here; It’s very apparent that we are a genuine Brazilian company.

Speaking of the long-term, what do you want to make of the PGS name here in Brazil?

Our focus is to be the chosen service provider based on technology and experience. We have to make sure that we understand our clients’ needs and that we continue to evolve as a company to provide what the industry requires.

We’ve now been working in Brazil for over 15 years and it has been a very exciting arena for us. Here in Brazil, PGS will continue to grow and we should see that the data processing center expands. There is an upgrade plan, which obviously will require more geophysicists.

Personally, in the last four years that you’ve been here, what is the biggest thing that you’ve brought to the company?

I think it’s very interesting for staff to have international exposure. It’s too easy for companies here in Brazil to be solely focused on Brazil. Instead it should be about sharing experiences and creating opportunities within a worldwide company rather than just a single Brazilian entity. There are opportunities out there; it’s just a question of finding them.



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