Seismic Acquisition Expected To Be Soft In 2014-2015; Mergers May Signal Market Bottoming

By: Carter Haydu, Daily Oil Bulletin

Coming off the tail end of a relatively lacklustre 2013-14, seismic acquisition companies can expect a similarly soft season ahead in Western Canada, say industry representatives.

“There has been one merger completed and another merger that is imminent, but even with the mergers happening there is still minimal work available for crews in Canada,” Forrest Burkholder, general manager at SAExploration Holdings Inc., told the Bulletin.

He added: “2014 was mediocre at best and 2015 is looking like it is going to be similar or slightly worse.”

According to Burkholder, lack of market access for producers is limiting exploration, which means companies are focusing on developing current assets with infrastructure and available markets already in place, which is largely reducing the work available for seismic firms.

“I would certainly think the pipeline issue is impacting all Canadian energy service sectors,” he said, adding that many oil and gas companies are still completing their budget cycles for 2015, and so there is potential for more seismic work. However, based on customer feedback he expects the job pickings to be fairly slim.

“[SAExploration] is international, and so we are fortunate in that we can move people and assets to places that are still active while we keep whatever is necessary here to keep things working as needed by our clients.”

Kelly Zamiski, operations vice-president of Sourcex Geophysical Corp., said that while many seismic companies are transferring equipment and personnel to the United States and even international markets, the company has yet to take such measures, in large part because commodity price woes are hurting energy companies everywhere.

“It certainly is not as busy in those markets either,” he said, adding that better crude prices would improve investments in Canadian seismic acquisition, although commodity prices are just one factor in low seismic activity.

“This is the culmination of a bunch of things that have slowed us down, including instability in the market price, but we are also hearing from our information sources that there is just no pipeline to move it, and they can’t get a lot of their product to market in a timely fashion.”

With current market instability for the oil and gas sector, Zamiski does not think seismic acquisition companies can expect this year to be any busier than last year.

“Certainly, to get through this [companies] are just going to have to stay the course. We are starting to see some companies merge together. I think you are going to see more of that as the year starts to transpire, especially if it looks to be slow next year as well.”

Seismic sector still dealing with challenges from AER implementation

With all the confusion that went with the advent of a single energy regulator last year, the resulting backlog of applications had a dramatic impact on the 2013-14 seismic acquisition season, Mike Doyle, president of the Canadian Association of Geophysical Contractors, told the DOB.

“Really, by the time it was cleared it had impacted certainly at least some of our winter work,” he said, adding that the first quarter of 2014 was the worst seismic acquisition season in Western Canada since the first quarter of 2010, when the market bottomed out due to the 2008 financial crash.

“At some point, [the oil and gas companies] just decided to shelve [seismic work] until next year.”

With the Alberta government changing its whole approach to approvals with its single-window Alberta Energy Regulator, many projects received late approvals, said Burkholder. While the long winter definitely helped get some work done in 2013-14, he noted, the weather was also a hindrance for the industry.

“Obviously we like cold weather and longer winters, which really helps get things done, but last winter we had a fairly significant snowfall in some areas that dramatically hindered operations, and it certainly cost clients more money to complete projects.”

With current market conditions, the oil and gas industry will probably call for reactive rather than proactive seismic work over the upcoming months, Zamiski said. His company intends to deploy at least two crews this season, and possibly a third, into Western Canada.

“We have a bit to do on the Saskatchewan side — not deep southeastern Saskatchewan, but around the Lloydminster area and south of there. We will have a little bit of demand in the oilsands coming up this year, and a little bit in the Peace River area, with possibly a bit of demand in the Fox Creek area as well.”

Duvernay area, oilsands targets for 2014-15 seismic season

Depending on how the big industry players react to the British Columbia’s newly-announced LNG tax regime (DOB, Oct. 21, 2014), there could be a perceptible effect in terms of seismic work, as the prospect for that industry has already resulted in more demand for subsurface mapping in the Horn River and Montney over recent years, Doyle said.

“We have seen companies spend lots of money in those areas, and in the last year or two we have seen bigger players starting to get out and sell to other players — you are seeing that consolidation.”

According to Doyle, seismic acquisition companies continue to do 4D work for SAGD operations, and companies are also expressing interest in seismic work for the Foothills and oil plays such as in the Duvernay. However, if the price of oil continues to soften, he said, companies would likely concentrate on existing plays rather than exploring new frontiers.

While the Duvernay is busy, as is the Fort McMurray area, Burkholder told the DOB that B.C. is actually on the slow side for seismic work this year.

“The biggest challenge in B.C. is the amount of time it takes to get an approval. They are regularly 90 to 100 days once you submit to the [B.C. Oil and Gas Commission] to get your approval,” he said, adding that while the province’s recent LNG income tax announcement would probably help seismic acquisition companies long-term, it is doubtful the positive impact would be felt too much this winter.

In Saskatchewan, Burkholder noted, seismic acquisition firms are not only grappling with less demand from the oil companies, but also from potash companies dealing with their own global activity and economic woes.

For example, Potash Corporation of Saskatchewan Inc.’s capital expenditures for the first nine months of 2014 fell 40 per cent, year-over-year, to $726 million.

Fortunately for those in the seismic acquisition business, Doyle said, even if the sector is currently going through a low point, there really is no other way to attain the subsurface mapping necessary for producers to make their decisions, although there are other technologies that can help.

Eagle Canada parent company part of ongoing seismic sector mergers

Wayne Whitener, president and chief executive officer of TGC Industries Inc., said that while seismic acquisition is currently a bit of a soft market in Canada, subsidiary Eagle Canada Inc. is fortunate to be well established north of the Canada-U.S. border, with a strong reputation and client base.

“We are hoping to run three to four crews [in Canada] in the fourth quarter, and our hope is to run five to six crews in the first quarter of next year,” he told a recent conference call.

“That being said, it is still a little bit early in the season for us to know what the backlog is going to be like in the first quarter but we are very optimistic on the amount of work we will be receiving in Canadian operations.”

Last month, U.S. companies Dawson Geophysical Company and TGC announced a proposed strategic business combination, which if approved would see Dawson and TGC shareholders own about 66 and 34 per cent, respectively, of the combined company, to be called ‘Dawson’ in the U.S. and ‘Eagle Canada’ north of the 49th parallel.

“Obviously the Canadian issue, from our side, will be a growth opportunity for us,” Stephen Jumper, president and CEO at Dawson, said in discussing how the merger would benefit his side of the new company on the Canadian front if approved by shareholders.

Dawson is still building its presence in Canada and this has been difficult due in large part to softer market conditions, Jumper told the merger announcement conference call. “This is an exciting time for our companies as we work together to combine our complementary resources and create a best-of-breed company.”

If recent merger deals are any indication, then the upcoming seismic acquisition season will be rather limited, Doyle told the DOB. “We have seen some proposed mergers … and to some extent that signals the bottom of the market,” he said, adding that mergers reduce the number of players vying for a limited number of seismic contracts.

“Certainly, when the consolidations occur, our type of work tapers off for a while, until those companies figure out what they are going to do.”

Earlier this year, Geokinetics Inc. acquired CGG’s North American land seismic acquisition business, with CGG contributing its North America land contract activities (minus its land multi-client and monitoring business) for a minority equity stake in Geokinetics.

David Crowley, president and chief executive officer at Geokinetics, said in a news release that consolidation elevates Geokinetics to the top position in marketed crews for North America, including a leading position in Canada.

“The combination of our industry-leading seismic acquisition teams will better position our company in the North American marketplace, as we integrate our experience, knowledge and deployable technology,” he said.

As part of the transaction, CGG will provide its patented technology in support of seismic crews. Geokinetics will also benefit from a preferred relationship with the CGG North American land multi-client group.

Diverse portfolio, multi-client model helps Arcis through soft market periods

TGS, through its wholly-owned subsidiary, Arcis Seismic Solutions, completed several projects in the Western Canadian Sedimentary Basin last winter, primarily focused around the Duvernay and Cardium plays in the Pembina core area. The company currently is acquiring more than 700 square kilometres of new data near Fox Creek in the Kaybob-Bigstone-Simonette area.

“Basically, we are targeting a variety of formations. The program is designed to assist in the evaluation and development of multiple zones from the Cretaceous to Devonian, including emerging plays such as the Duvernay and Montney, along with established producing zones including Swan Hills, Gething, Notikewin and Dunvegan,” Katja Akentieva, managing director of Arcis and North America Arctic, told the DOB.

“We are very pleased to be expanding our data coverage in the heart of the Duvernay fairway where we see high customer interest. We are hoping to deliver additional value to our customers by including reservoir characterizations deliverables, as well as S-wave component data.”

According to Akentieva, there is enough available work for the “several crews” Arcis has contracted in Western Canada. The soft seismic acquisition market in the region presents an opportunity for multi-client data companies such as Arcis-TGS to secure competitive rates for projects, she said.

The Arcis multi-client model is advantageous to operators when budgets are constrained as it provides an attractive solution that allows operators to “stretch their seismic dollars further” by licensing multi-client data, said Akentieva.

“In the soft market conditions, where work is often limited, in order to remain successful you have to leverage your competitive advantage and offer differentiators to the market place, to your customers. Providing high-quality data and utilizing an integrated approach to solving imaging problems will enhance the understanding of the reservoir.

“If an unconventional play is delivering inconsistent results, seismic may be a mechanism to reduce this uncertainty and high-grade exploration opportunities.”

Arcis, through its parent company TGS, has a diverse portfolio including offshore seismic data library. For example, Akentieva said, her company is active offshore East Coast, which has seen increased activity since the Canada-Newfoundland and Labrador Offshore Petroleum Board announced a new scheduled land tenure system to improve transparency, predictability and input (DOB, Dec. 20, 2013).

“We are seeing an increased level of customer interest and support of our seismic activities. We continue growing our footprint in this exciting frontier area. In partnership with [Petroleum Geo-Services] we have two vessels operating there this season, acquiring over 33,000 kilometres of 2D data.

“We are also seeing some interesting features on our data which could soon become new exploration targets. It has been a very exciting part of our business.”


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