Watching the seismic industry from 1998 to 2004, one could only marvel at how far the mighty had fallen. After the ship-building, data library-amassing frenzy of the late '90s, the segment entered a slump that some had foreseen but none could really avoid. Even more surprising, perhaps, was how long it took for that cycle to reverse itself.

After all, the entire oil and gas industry entered a slump in late '98. But the turnaround came fairly quickly, and since then, with a minor hiccup in 2002 following the Sept. 11 attacks, oil prices have only gone up, reaching and maintaining US $50+/barrel prices and astonishing all who remember budget forecasts based on $11 oil. Through it all, marine seismic companies have waited for their turn.

Their turn, it seems, has come.

"I don't think it's a surprise that the market has turned around," said Luc Schlumberger, vice president of multiclient services for CGG Americas Inc. "The surprise is that it took so long and finally came so quickly. In a very short period of time the market conditions have completely changed."

In some ways the marine market looks much as it always has. There are still boats pursuing both 2-D and 3-D work, there are still ocean-bottom cable (OBC) crews active around the world, there are still multiclient as well as proprietary surveys being shot. What's changed is the demand for these services, the willingness of oil companies to pay for them and the discipline within the seismic industry to hold out for the compensation it deserves.

Factors for change

All along seismic contractors have held out the hope that oil companies would eventually run through their current list of prospects and have to start exploring again.

This has happened, but an unexpected kick in the pants has come from the renewed scrutiny of balance sheets and reserves. With Shell, El Paso and others reporting overbooked reserves in 2004, other companies have felt obligated to review their accounting practices. Suddenly the "lack of drillable prospects" issue has gone from a conference topic to a red flag within some exploration and production departments.

This plays nicely into the hands of the seismic contractors and has resulted in a more robust proprietary, or contract, market than has been witnessed since the multiclient model first came into play in the 1990s. While multiclient surveys ideally suit both parties - seismic contractors because they call the shots on the survey and can license the data multiple times, and oil companies because they get a price break - many seismic contractors would prefer to have a single customer paying full price for a proprietary survey, even if that means that the oil company is more in charge of survey parameters. Given the increasing expertise within the contractor companies, often their employees are brought in early in the process even for a proprietary shoot.

"The traditional business model of seismic is changing from a time where oil companies handed us a set of pre-plots and we handed them back a set of data tapes," said Pennelope Ratcliffe, marine marketing manager for WesternGeco. "To get the most out of a reservoir, it requires more of a collaborative effort."

In addition to reserves issues, the continuing push for deepwater exploration, with its high-dollar expenses, will ensure that oil companies will have done as much homework as possible before drilling their first well. And lease expirations promise to spur marine activity over the next few years. Many leases in the Gulf of Mexico and the North Sea will expire, and more independents will enter these markets to work their magic on the remaining oil and gas deposits.

In fact, while the contract market for large exploration surveys is higher than it's been in years, contractors also report a robust interest in reservoir-sized surveys, focused more on reservoir characterization and time-lapse (4-D) studies. Once primarily the purview of North Sea operators, 4-D seismic has finally come into its own almost worldwide as a viable reservoir characterization tool, and in fact WesternGeco was recently contracted by Petrobras to carry out the world's largest 4-D survey to date over the Marlim complex offshore Brazil. The survey covers 590 sq miles (1,520 sq km) over the largest deepwater producer of oil and gas in the world.

In addition to the North Sea and South America, Ratcliffe said her company is seeing increased 4-D activity in West Africa, the Gulf of Mexico and even parts of Asia.

The industry is enjoying the uptake of other technologies as well, some of which have been around for a few years but were not widely adopted. Operators are showing increased interest in OBC surveys since they provide multicomponent measurements, often a key in providing the kinds of detailed information needed in reservoir characterization projects. Wide-azimuth and multi-azimuth acquisitions are also in greater demand than before. Many of these changes are needed to provide better input for data processing.

"As new high-end processing algorithms become reality, an increasing emphasis is being made on 'proper' acquisition being able to provide an appropriate platform for successful processing," said Andrew Long, vice president of technical marketing for PGS Marine Geophysical. "Thus there's a growing interest in high-density 3-D, multi-azimuth and multivessel acquisition scenarios. Processing technologies such as 3-D surface-related multiple elimination (SRME) for removing complex multiples and anistotropic 'wave equation' prestack depth migration for precise structural imaging and well planning will become common technology within the next year."

Long also mentioned that most marine streamer contractors are replacing their streamer pool with solid streamers, which offer advantages in terms of noise reduction, environmental friendliness, ease of use and longevity.

New decade, old issues

Not everything has changed. Some of the problems that dogged the seismic industry in the late '90s - too much multiclient data, too many boats - still remain. But the industry seems to be learning from its past mistakes.

In fact, while multiclient seismic has gotten a bad name over the years, there are still companies that make this business model their bread and butter. Fairfield Industries and TGS shoot nothing but multiclient surveys, and other companies still make it a large part of their portfolio. How are they making it work?

"The margins in our business [in 2004] were similar to what they'd been the year before, but people were buying our data to a larger degree," said John Adamick, vice president of business development for TGS. "We focus on multiclient surveys, and if you do your surveys right and put them in the right places, you're going to do well."

Both Fairfield and TGS have benefited from studying the potential number of data buyers before conducting a spec survey. In the Gulf of Mexico and the North Sea, for example, there are dozens of players; in other parts of the world there may be far fewer. In environments like the Gulf of Mexico an ambitious, extensive 3-D multiclient survey will do well if it's shot over prospective acreage. In other areas such as Brazil, with larger blocks and fewer players, the multiclient model might not work nearly as well, as the seismic industry discovered to its chagrin in the early 2000s.

Even in an active area like the North Sea, however, TGS finds 2-D surveys to be a viable option. With lease expirations imminent and new players likely, the area suffers from the lack of a large regional survey since until recently crossing country boundaries made such surveys untenable. "We're involved in reshooting the entire North Sea in super-long offsets," said Kim Abdallah, vice president, NSA New Ventures for TGS.

While companies experimented in the past with "boutique" data libraries that offered the latest acquisition or processing technology as an add-on feature, Schlumberger said that most operators are more willing to experiment with new technologies on a contract survey where it might differentiate them from their competitors. "The multiclient surveys are still on the traditional side of the technology," he said. "But 'traditional' could mean very heavy 3-D acquisitions and some kind of prestack depth migration to deliver a product that makes sense on an exploration basis."

What hasn't changed much at all is the difficulty in securing pre-funding for a multiclient survey. In the past some contractors shot purely "speculative" data, meaning that they had no contracts signed or money down and simply hoped that they could acquire something that might eventually be of interest. Most have since abandoned that tack.

A report written by analyst Justin Perucki explains the problem with this logic. "The company spends a lot of cash up front, betting that the investment pays off in dribs and drabs over the next few years. Rapidly changing seismic technology compounds the risk." This realization forced several companies to significantly write down the value of their data libraries over the years.

"Our stance is that there has to be a very fine balance between risk and reward [on a multiclient survey]," Ratcliffe said. "I would envision that we have learned from the past."

A pre-funded survey provides a greater degree of confidence. But getting companies to sign on the dotted line has never been easy.

"If there's been a change, it's that they're asking for harder surveys," Abdallah said. "All of the easy ones have been done, the open, bluewater surveys. And even those are getting harder because they want longer offsets, and depth processing is the norm rather than the exception."

Added Paul van Riel at Fugro, "Our investment levels [in multiclient] are fairly constant. Pre-funding is decreasing, which we attribute to the general tendency in the oil and gas business to increasingly pass risk onto the contractors."

The other key issue that remains is overcapacity. Right now vessel usage is high, with many boats reporting significant backlogs. But the fact remains that an awful lot of boats were built in the late '90s and early in this decade, resulting in too many high-tech, high-capacity vessels.

"The market suffers structurally from oversupply," van Riel said. "It will not take much of a drop in the demand for the market to come down again."

But viewed from another perspective, if demand continues to grow, will there be sufficient capacity to handle client requirements? According to BGP Vice President of Business Development Rick Ward, the Chinese contractor plans to make a low-tech, gradual entry into the deepwater marine market based on the premise that demand will grow. "Chinese oil companies have asked us to enter the market, while international and national oil companies have expressed concern about the availability of vessels. We see this as an opportunity," Ward said.

Ratcliffe agreed that overcapacity remains a troublesome issue, and said that rather than embark on a new phase of vessel construction, many of the vessels built in recent years could be readily adapted to accommodate changing requirements due to advances in technology. "We feel that there needs to be discipline when it comes to adding additional vessels," she said

CGG's Luc Schlumberger is not overly concerned about an immediate drop in the market, however. "Overcapacity is still an issue," he said. "But what's interesting is the way the market looks right now. There's a very strong and sustained activity from the national oil companies, and to me, it's not just a peak - it will be around for some time.

"And with the current pricing, all of the companies have revised their acquisition budgets and are looking for new seismic. They need it as a prerequisite for renewing their reserves. For now and the near future, there are definitely good market conditions."

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