As a result of extended low oil prices, seismic spending is becoming increasingly dependent on economic factors and less contingent on technical and operations factors, according to a survey by Merrill Lynch & Co., New York.
The investment firm polled more than 100 oil and gas companies about seismic activity, spending, and trends: "In our 1997 survey, top actors seen driving seismic activity growth were acquisition technology, 3D reshoots, and lease activity. In 1998, the top drivers were oil and gas prices."
Low oil prices in particular are primarily responsible for an expected decrease in seismic spending this year: respondents expect seismic spending to total $3.9 billion in 1999 vs. $5 billion in 1998. Marine expenditures are projected to decline 16% to $2.0 billion, and land expenditures 35% to $1.2 billion.
Oil price effectsFor the first time in recent years, budgeted seismic expenditures are expected to be lower in 1999 than in 1998. It should be noted, however, that, in the past two surveys, actual seismic expenditures for a given year were greater than had been projected the prior year.
"The potential impact on seismic activity will be substantial if oil were to remain below $13-14 and natural gas were to remain below $2 for an extended period, which we define as an additional 6 months," said Merrill Lynch. In the event prices remain that low for that long, petroleum companies estimate they would reduce marine activity by 34% and land activity by 43%.
"Another interest point," said Merrill Lynch, "is that a larger percentage of the independents responding (vs. majors) said they wouldn't cut expenditures if oil and natural gas prices remained low."
Future trendsEconomics are driving a trend toward increased multi-client seismic vs. proprietary work.
"The cost of participating in a multi-client survey is roughly 30% of a proprietary contract shoot," said Merrill Lynch. "Improved economics have also prompted oil companies to acquire data for analysis on an area-wide basis in the deepwater Gulf of Mexico, rather than just concentrating on single, scattered blocks. Other drivers of multi-client demand include lease sales in the Gulf of Mexico, farm-ins and farm-outs, and the turnover of offshore blocks among oil companies.
"Internationally, multi-client (work) has grown as well, with North Sea multi-client (seismic) now (accounting for) around 25% of the market, up from virtually nil 5 years ago. The opening of Brazil's offshore region to international oil companies will most likely lead to the adoption of the multi-client concept (there) as well."
Respondents see the Gulf of Mexico as the most active marine seismic market over the next 2 years (see upper chart, this page). In this region, the trend continues to shift away from the shelf and toward deep water, says Merrill Lynch (see lower chart, this page).
"The oil company prospects in deep water are much larger than can be found in shallower waters. The geology is also much more complex, thereby requiring more seismic information for interpretation. The level of monetary commitment is also greater for deepwater drilling, and risk factors are also greater, so oil companies view seismic information as a necessity in an effort to reduce risk."
Climbing on the list of active marine seismic areas this year is Latin America, where the increase will be driven by activity off Brazil. "The other key areas," said Merrill Lynch, "are the North Sea, where licensing rounds spur demand, and West Africa, where huge finds off Nigeria and Angola have attracted the major oil companies.
"The geology offshore West Africa is similar to that in the Gulf of Mexico. Therefore, oil companies will utilize the same seismic acquisition techniques that have proven successful in the U.S. In Brazil, the oil companies are going to need seismic to assess the potential prospects prior to committing capital. In addition, the need to get higher-definition data will follow prior to executing drilling plans."
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