CGGVeritas sees rough seas ahead
CGGVeritas sees demand for seismic surveys falling over the next two years as a $100 per barrel drop in the price of oil leads major oil players to shelve costly new exploration projects, chief executive Robert Brunck said.
But a solid balance sheet and savings should help the seismic outfit weather the downturn, and it will keep spending on research and development and high-end products to prepare for a predictable future rebound, Brunck said in an interview with Reuters.
"Even if 2009 and 2010 are difficult years, the fundamentals of the oil market will remain, that is the challenge to replace existing reserves," Brunck said.
"There is a need to find and produce more oil so people will always need us, even in difficult years," he added.
CGGVeritas reported a 36% increase in annual income to €340 million ($435.6 million), or €2.41 per share in 2008. Revenue rose to €2.60 billion from €2.37 billion in 2007.
In the fourth quarter, the company reported a 77% increase to €119 million, or €0.86 per share. Revenues rose to €766.8 million from €603.6 million in 2007.
CGGVeritas, born from the merger of Compagnie Generale de Geophysique and Veritas in 2007, recently bought Norwegian company Wavefield Inseis to boost its fleet of vessels.
But demand for seismic imagery is set to fall about 15% to 20$ in 2009 and 2010, compared to 2008, said Brunck.
"Exploration and production spending will fall by 10% to 15%, and because seismic is generally more affected, we are betting on a (seismic) market fall of 15% to 20%.
"If it was to be closer to 20%, half would be in volumes, the other half in prices. This is our working scenario for 2009," said Brunck, who said CGGVeritas’s order book stood at €1.57 billion on 1 February.
Brunck said tenders for new seismic contracts were down 20% year on year, and confirmed that clients were less in a hurry to conclude negotiations than they were a few months ago.
"A year ago, oil companies were already booking vessels for the summer, knowing there would not be enough of them. This year, they feel that demand and supply will even out and that they have more time," he said.
To brace for this new environment, CGGVeritas would reduce costs, trim its investments to €300 million from €500 million, and generate another 100 million in synergies from the integration of Veritas, Brunck said.
CGGVeritas will also decommission ageing vessels.
"We are more in 2009 and 2010 in a period of harvest rather than a period of sowing," said Brunck, who downplayed any expectation for more acquisitions.
"I don't think this will be a time for consolidation. We have done a lot in this area, with Veritas and Wavefield. Now we need to harvest."