The number of seismic acquisition crews working in Western Canada for the 2015-16 season will be drastically reduced from even a couple of years ago, as the smaller companies are essentially gone and those medium-to-large companies remaining are grappling with the impact of a multi-year downturn for the sector.
“In general, we predict a softer winter than last year, and last year was bad,” Mike Doyle, president of the Canadian Association of Geophysical Contractors (CAGC), told the Bulletin. He said the season prior to Alberta’s single regulator implementation in November 2013, there were about 30 to 35 seismic crews in Western Canada. Due to timing of regulation, there were around 22 to 25 crews in Q1 2014.
With the drop in oil prices and market uncertainty, the 2014-15 seismic acquisition season saw only about 15 crews operating in Western Canada.
With the stress of hard times and mergers and acquisitions impacting the seismic sector over the past couple of years, Doyle noted, the number of seismic acquisition companies in Western Canada has been whittled down significantly.
Companies still operating in Western Canada include Eagle Canada Inc., Geokinetics Exploration Inc., GeoStrata Resources Inc., SAE Exploration Holdings Inc. and Tesla Exploration Ltd. An example of a company no longer in business is Sourcex Geophysical Corp., which closed its doors in March.
“It is a long way down from days of past,” Doyle added. “The way we see it, we are sort of on the backend of a 24-month downturn, as perhaps compared to other sectors of the industry, which have seen more like a year’s [downturn].”
Even with fewer firms left in Western Canada, there are still too many companies for the amount of seismic acquisition work available, said Richard Habiak, president and chief executive officer at Tesla. “Most of our work is oilsands related, and most of our work is production related — it is monitoring steam injection, and there really is very little exploration work in Alberta anymore.”
According to his company’s Q3 financial and operational results, (DOB, Nov. 18, 2015), Tesla operated up to two crews for part of the seasonally-slow third quarter, using the multi-component wireless acquisition system known as “Hawk.” While demand for this wireless equipment continues, increased efficiency has yet to correspond to revenue and margin increases.
Where the work is
Every year at the annual CAGC conference in Red Deer, the Alberta government provides a status update of current activity levels based on applications to the province. Typically, there are around 230 applications for seismic acquisition projects, said Forrest Burkholder, general manager at SAExploration. However, in 2015 the province only received approximately 25 proposals.
“It certainly is not a healthy industry at all in Canada, and every single company in town has done either one of two things, or a combination,” he told the DOB. “They have either done layoffs and transferred people to international operations, or stayed on a course for just a complete closing of the doors.”
Fortunately for his company, Burkholder said, there is still a fair amount of 4D seismic activity, which is mostly heavy-oil related and for which companies only apply to the province on the basis of multiyear approvals (meaning those projects do not necessarily show up on the province’s annual status updates to CAGC).
“Certainly, most of the activity that we are seeing, generally speaking, is more heavy oil than anything else, but there are some condensate plays that are being chased.”
Despite the impacts of an extended downturn on the seismic acquisition sector, Doyle said there is still seismic work this winter in Western Canada. “There will be some work in the oilsands. Typically, you need some 4D dealing with SAGD, and that type of work still tends to occur because it is linked to production. There will be some work in terms of microseismic, which includes monitoring of fracs or the induced-seismicity stuff.
“There will be very little work in B.C. That may change, but most of the stuff going on in B.C. is more the drilling in the Montney and such, and so areas like the Horn River have been quiet for the last two winters. There is always some work in Saskatchewan in the south, the Bakken to some degree, as well as for the potash. However, the potash stuff generally tends to be more in the summer and the fall.”
Outside of oil and gas, SAExploration does some seismic work for the mining industry, and the company conducts seismic work for Western Canada’s potash sector, Burkholder told the DOB.
However, potash producers are not without their own problems. For example, Potash Corporation of Saskatchewan Inc. saw net income fall 11 and five per cent, respectively, to $282 million and $1.07 billion for the three and nine months ended Sept. 30, 2015, compared to the same periods one year prior.
"Broader emerging market concerns have weighed on customer sentiment, contributing to a weaker fertilizer environment in the second half of 2015." Jochen Tilk, president and chief executive officer, told a recent third quarter conference call. In response to market constraints in potash, the company is planning various cost-saving measures.
The importance of being global
For Tesla, the biggest driver in last year’s activity was international oil and gas exploration. While the immediate future may not look very bright for North America’s seismic acquisition companies, Habiak said one “bright spot” for his firm remains the potential in Africa, which has a bit of “wildcat exploration” underway.
Of those seismic acquisition firms still working in Western Canada listed earlier, their commonality is they all work internationally, noted Burkholder. While being able to access markets in the U.S. and abroad is an advantage, he said the real key to surviving the downturn is maintaining positive cash flow until the market recovers.
However, Burkholder worries the hard times for seismic acquisition might be a “new normal” and will not necessarily go away when crude prices increase, as the problems in seismic acquisition have been going on for longer than the current industry downturn.
“In the mid-1980s we saw a significant downturn, and we saw another significant downturn in the 1990s. The 2000 downturn was bad, but it was only for the year. Now, we are kind of going onto ‘Year Three’ in the geophysical side of it. I don’t think the drilling markets were hit quite as hard. They seemed to keep working a bit longer, just to the nature of their contracts, and then obviously they are closer to production. Seismic, however, gets shut off fairly quickly.”
He added: “For 2015, it varied between acquisition companies, but overall most everyone would agree that it was not a great year. Unfortunately, 2016 is looking to be even worse.”
With fewer competitors, Burkholder hopes pricing improves so those companies remaining at least get paid a bit more for the work they find, rather than breaking even or losing money with each job. He added: “We need to focus on working for the majors, as they typically have larger projects, and they work more consistently.”
When the downturn ends
In order to see a significant boost to the seismic acquisition sector for oil and gas, it will take a bottoming of the market, followed by evidence of a return to higher commodity prices, Doyle said. A natural gas export industry would help as well. “If something comes along like LNG one day, then I think you will have a vibrant market once again. But there has been heavy consolidation and certainly we have seen companies disappear from the marketplace.”
With so few crews left in Canada, Doyle worries about the sorts of challenges associated with fulfilling seismic acquisition needs when oil prices return to higher numbers and there is an increased demand for seismic work. “You have core groups of people, but once things are down for too long a period of time, those people move on,” he said. “They have to make a living somewhere else, whether if it is a different industry or different geography completely.
“Expertise at the higher end will be where things are most challenged in order to ramp crews back up to numbers of anything like three or four years ago.”
In Canada, Tesla successfully reduced field overhead costs, resulting in significantly-improved margins and margin percentages during the third quarter. With all the cost-cutting measures required to survive a downturn, though, Habiak said there will be challenges meeting increased demand when an upturn hits the energy sector.
SAExploration is a “very nimble company,” and is mitigating the downturn, in part, by moving assets, said Burkholder. While Canadian business has slowed, the company has transferred crews and equipment abroad, thus reducing its number of layoffs. Management has taken other measures to maintain its valued staff as well.
He said: “We are fortunate because we have had discussions with our people and we have people who are doing jobs that aren’t their normal jobs, but they are still getting paid salaries. We feel that we are in a good position for the upswing when it comes in. We obviously have to remain optimistic about things and we try to remain that way, and so we are planning as if we will be back at work in more of a normal market — whatever normal is.
"At some point, companies are going to choose to go back to work, or else those energy companies are going to have to make some decisions. At some point, they are just going to have to start working their assets, just finding efficient ways of doing so."
Eagle Canada positioned for recovery
Late last year, TGC Industries Inc. and Dawson Geophysical Company announced a proposed strategic business combination, with the combined company to be called ‘Dawson’ in the U.S. and ‘Eagle Canada’ north of the 49th Parallel (DOB, Nov. 25, 2014). In February 2015, the companies completed their combination, putting the emerging entity in a position to respond to market conditions quickly, says top brass.
“It is our belief that the seismic business is a balance sheet-driven business, and you need to be in a position to upgrade your equipment base in an up-cycle, and be able to manage and maintain your people assets in a down-cycle,” Stephen Jumper, president and chief executive officer at Dawson, told the recent Johnson Rice 2015 Energy Conference in New Orleans, LA. “We are well positioned to respond to the market as it changes quickly.”
According to Jumper, the Canada portion of the newly-combines company certainly is experiencing the impacts of the industry downturn. The Canadian market for the upcoming season, which already has a short window, will be challenging for the company he said, but the recent merger should help weather the proverbial storm. "We think over time, whether recovery will be in ... 2016-17 or 2017-18 ... we will be well positioned to respond to that."