The seismic industry is likely to see its total revenue slashed by 50% or more this year as recent exploration spending cuts by oil companies reverse a recovery for the sector, resulting in contract cancellations, survey delays and lower vessel utilisation, according to Rystad Energy.

The Oslo-based research consultancy has estimated in a fresh analysis that seismic revenue is set to fall by 51% in a scenario with the Brent oil price at $30 per barrel and by as much as 77% with the price at $20 per barrel when compared with last year.

Brent was trading at less than $23 per barrel on Tuesday morning.

Cost-cutting measures

It follows cuts of around 20% in exploration spending by industry heavyweights such as Equinor, BP, Shell and Total in response to the coronavirus crisis and low oil prices, which have also resulted in many governments delaying licensing rounds.

Rystad believes seismic will be one of the oilfield service segments hardest hit by the cutbacks as new geophysical surveys are put on hold or cancelled, while drilling of new exploration wells will also be sacrificed on the altar of cost-cutting expediency.

Seismic players including Shearwater GeoServices and SeaBird have already seen a number of surveys cancelled in Asia Pacific and off West Africa, respectively, and there are fears more terminations could follow around the world.

Covid-19 impacts

Completion of surveys has also been hit by logistical challenges due to quarantine rules and travel restrictions implemented to curb the spread of the Covid-19 virus that have impeded crew changes for seismic vessels.

“Seismic companies across the board have started to adjust their business plans to better prepare themselves for this downturn, Rystad oilfield services analyst Binny Bagga said.

“Most companies have implemented cost-cutting measures which include lay-offs, furloughs, cold-stacking of vessels and general cost reductions.”

To survive, the market may come back again to lower contract pricing and vessel charter rates for some time

Rystad analyst Binny Bagga

The research company believes the balance sheets of small and medium-sized contractors could be “severely hit” by delays in completion of surveys on which most of their revenue backlog is based.

It expects multi-client companies like TGS with an asset-light business model, relying on chartered-in vessels rather than owned tonnage, will be more resilient to the downturn as they have greater flexibility to respond to changes in demand by only chartering the vessels they need, enabling them to protect cash flow.

Data libraries 'a saviour'

In addition, Rystad said multi-client data libraries could “act as a saviour” for such companies as there are substantially lower costs associated with multi-client studies compared with data acquisition under a survey contract.

TGS disclosed on Tuesday that it had completed reprocessing of multi-client 2D data from a 21,600 square-kilometre survey in the Sea of Okhotsk off Sakhalin Island in Russia's far east, with data now available for customers who backed the survey.

However, those companies that operate on the contract acquisition model with their own fleets — such as PGS, Polarcus and Shearwater — are likely to be “severely impacted”, which could result in fleet sizes being reduced due to lower vessel utilisation, according to Rystad.

Bagga warned there could be bankruptcies and distressed asset sales for small and medium-sized seismic companies that are heavily invested in offshore acquisition work.

“To survive, the market may come back again to lower contract pricing and vessel charter rates for some time, as the service companies will prioritise to cover their operating costs," the analyst said.

Brokerage Clarksons stated in a recent oilfield services report that “seismic could potentially be negatively impacted if commodity prices stay at depressed levels in 2021”, which is likely to lead to further cuts in discretionary spending on opportunistic exploration by oil companies.

However, it stated “demand for 4D seismic and other field monitoring surveys for already producing fields are likely to be less elastic versus commodity prices”.

Exploration

Covid-19 crisis to take toll on seismic revenue