The oil industry is, has been, and will continue to be, characterized by its cyclical nature. For operators, this means ensuring that prospects meet more stringent, economic hurdles in order to remain economically viable even at the lowest prices of oil and gas. For seismic service providers, it means balancing idle capacity against balance sheet expansion in order to maintain profitability. Last year, the seismic industry wrote down US $728 million in assets.

Between 1995 and 2002, the seismic industry invested approximately $17 billion with a result of a negative free cash flow of $2.5 billion. A significant part of this investment was in multiclient surveys, where the service provider has funded an increasingly large part of the survey. In fact, multiclient libraries have grown at a rate of approximately $1 billion per year since 2000. When the cash injections ran out in 2002, the consequences were - to coin a phrase - seismic.

Contrast this with the drilling industry, with an even larger investment in fixed assets, but thankfully without the ability to drill "spec wellbores" to abate the effects of the cycles.

A healthy seismic industry is good for all E&P stakeholders, as manifested by the overwhelming success of 3-D seismic and the growth that it enabled throughout the 1990s. Likewise, healthy competition is the seed that spurs the next innovative solution. It is well documented that the service sector's portion of the overall research and engineering (R&E) tab is growing. In 1990, the five largest international oil companies provided 90% of total oil industry R&E expenditure. By 2001, the oilfield service percentage, as represented by the three major service companies, had grown from 10% to 35% of total. The cash necessary to make these investments can only come from a very healthy industry, and while the seismic service sector did not invent 3-D seismic, a huge investment in R&E was needed to enable it.

There is little disagreement about the current state of affairs in the seismic industry, but there is also little consensus about how to improve it. Several possibilities could lead to a more stable industry:

* Consolidation would seem to offer the most immediate and certainly the most popular solution; however, history proves the opposite. Between 1998 and 2003, each reduction in the number of streamers towed by a large contractor was met with an equal number of additions from a smaller contractor. The result is that today there are the same number of streamers in the water as there were in 1997. This will eventually lead to a large number of small players, and perhaps the end to any significant investment in R&E.
* Another possible solution would be to re-bundle the higher-risk acquisition part of the business with lower risk processing, resulting in a greater balance of risk on the overall survey. This is laudable, but it may not be pragmatic.

Perhaps the best chance for a turnaround lies in shifting seismic from an exploration tool to a production environment, enabling reservoir engineers and asset managers to fundamentally change the way they manage their reservoirs and improve their return on investment as a result. This will require the use of more advanced technology with higher resolution in order to define and describe fluid movement in ever-smaller reservoirs, throughout the life of these reservoirs. While this would mean smaller and more custom designed surveys aimed at a particular objective, it would also mean more proprietary surveys and less speculation by the industry.

We know that 3-D seismic was one of the key enablers in helping operators improve their exploration success from 40% in 1992 to close to 70% in 2002. Is it possible that 4-D time-lapse seismic could be the enabler for increasing recoverability from a global average of approximately 38% to 70%? Or is there some other seismic solution that will effect a step change improvement in recoverability? Or should we adhere to the advice given by Charles Duell, commissioner of the US patents office in 1889, when he said, "everything that can be invented, has been invented." What a simple world it would be if we had only listened.


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