Combining two companies is no easy task. But WesternGeco has come through the process with few visible scars.

Mergers seem fraught with contradictions. The two companies can't talk at all during the "silent period," then must scramble to communicate everything quickly afterward. Management wants to take the time to do it right, but can't afford to lose market share in the process.
When Western Geophysical and Geco-Prakla merged to become WesternGeco, the new company faced these challenges and more. The companies were the two largest in the competitive seismic contracting sector, and had to contend with hungry second- and third-tier competitors only too happy to close in for the kill in any geographic or technical niche that was temporarily ignored. Yet they had a mere 3 months from the time their executive teams could start talking to each other to the time they closed the merger.
At the time of the announcement, industry sources voiced numerous concerns about the effect of the merger on the participants and the seismic industry. One major problem is that this type of consolidation can hobble the new venture's ability to be competitive in the short term.
"When oil companies merge, they are effectively inactive for a year while they evaluate seismic data positions, land positions, capability overlaps," said one source. "Of course, contractors can't afford to do that. But there will be a period of adjustment which could temporarily diminish their effectiveness."
In terms of assets, the match was very complementary. The two companies' multiclient Gulf of Mexico data libraries had much less overlap than expected, since Geco had emphasized the western Gulf and Western had focused on the central Gulf. They also had complementary strengths in land and marine, and Western had a strong multiclient library and a consistently profitable data-processing business, while Geco had focused on a strategy to introduce and leverage proprietary technology, including its Q-Land and Q-Marine data acquisition systems.
A year after the deal was closed, the company seems to have suffered little, if at all. An ability to make key decisions quickly may have been the major contributing factor, said WesternGeco President Gary Jones. "The first thing we did was choose the executive team, and then we chose the model of the merger," Jones said. "Those decisions were made very quickly and were widely communicated."
It helped to have a few main focal points. Jones said safety and profitability were the highest priorities. The entire staff was retrained in quality, health, safety and environmental issues. Profitability targets were never compromised.
"Operating a profitable business, complete with market share, was our primary focus all through the formation and the transition periods," he said. "Everything we did was in support of that commitment, and still is. One of the benefits of moving so quickly was that it minimized the confusion and helped everyone keep that focus. Rather than losing momentum, we gained it."
Jones said the executive team put together a detailed and task-oriented merger plan. The main goals were to focus technical strategies, integrate operations and identify and solve potential problems. He added the task was easier than anticipated because the two original companies were even more complementary than had been expected.
The only unfinished business at this point is the consolidation of the London, England- based employees, he said, and that task should be complete by the first of the year.
As with other oilfield service sectors, seismic contractors can benefit by having crews readily available in every part of the world, and Jones said one of the biggest challenges for the new company has been to overcome the perception that big is bad.
"We see so much benefit of geographical distribution of our capability, of trying to reach a new standard, so that an oil company knows it's going to get the same level of quality with any WesternGeco crew," he said. "The economies of scale and speed at which we can do things is just phenomenal.
"We've demonstrated over and over again that the raison d'être for the merger was to create efficiencies in the marketplace."
Size has its advantages in other ways as well. Jones said part of WesternGeco's strategy is to bring the next level of value to the field. "The industry has gone as far as it can with the technology it has," he said. "So we're bringing new technology. I don't mean tools and techniques; I mean new approaches, new methodologies."
Often a merger may look good on the balance sheet, but inside the company employees exhibit resentment and don't buy into the new company philosophy. The two original companies already had their share of disgruntled employees, Jones said, because of the severe downturn in the seismic market in the late 1990s.
"The status of the industry was so far down in the dumps that the merger actually helped us," he said. "It was a catalyst in the sense that our employees could see that it would have a positive effect on the company and the industry.
With the new company "completely out of the gates" as far as Jones is concerned, his goal remains the same: to run a profitable company that provides quality services safely. Jones hopes to run his company as a model of what the seismic industry should do, not what it has done in the past.
"Even though we're heavily focused on cash flow, the old maxim I have stuck in my mind is, 'Profit is opinion, but cash is king.' If you look over the past decade, most geophysical contractors have not been respecting that maxim."
Operating crews at below-break-even rates and ramping up crew capacity have been a few of the industry's sins during the past decade or so, he said. WesternGeco has, Jones said, been fearless about stacking vessels and shutting down crews when demand is low. The company has cold-stacked some of its vessels, prepared to bring them back at a moment's notice either to protect market share or address an uptick in demand.
"We think we've done our share to bring a balance, and we'll carefully monitor the situation to deploy as needed," he said.
While the WesternGeco merger has been a step in the right direction in terms of reducing excess capacity, Jones doesn't rule out further consolidation in the industry.
"I think that's there is probably the regulatory possibility and clearance for one more merger," he said. "A mature industry will evolve toward a stable rule of three. That hasn't happened yet, so I think there will be continued pressure on the industry."
This type of horizontal consolidation would have a continued positive effect on the overcapacity problem, he said. Meanwhile, dozens of vertical consolidation opportunities exist as well. WesternGeco recently bought EDS, a company with a niche migration algorithm. "I think we will be on the lookout for these sorts of niche companies that we can quickly consolidate into our strategies," Jones said. "We'll be a welcome home for these entrepreneurs with great ideas because to take these things to scale you need to move quickly, and we have both the resources and the desire to do so."
Looking forward, Jones sees WesternGeco poised to meet the changing needs of its customers due to the strengths of its parent companies, Schlumberger (a 70% owner) and Baker Hughes (a 30% owner). As seismic data becomes an integral part of development and production, Jones said the reservoir capabilities of the parent companies will position WesternGeco to craft unique solutions to customers' problems.
Increasingly, reservoir engineers look to seismic for additional information about reservoirs, but Jones said today's technology is often unsuitable or, at best, marginally suited for this task. A key priority for the new organization will be to upgrade every element of its technology and processes: more routine depth imaging, higher fidelity data and increasing use of time-lapse and multicomponent methods. "The value will be demonstrated in our work," Jones said.

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