Marine seismic contractors have been struggling in the wake of cuts in exploration spending by the oil companies due to low oil prices. However, Glen Rødland, Chairman at Spectrum, a Norwegian multi-client data specialist, says this is exactly what he has signed up for.
In a statement to shareholders, the chairman described 2015 as eventful, challenging and exciting “for an oil and gas focused guy like me,” and said that cyclicality and change are “normal” in the oil and gas market.
“Some people like to drive on the “dull” straight highways, others like the curvy narrow roads with more challenges for the driver, like “Highway 1”, where you need to work hard with the gearshift and use the brake and accelerator for every turn. The management and Boards of Directors at oil service companies should be the “Highway 1” type of drivers/decision makers in order to prosper long term,” Rødland said.
He quoted a research by ABG Sundal Collier, according to which, the marine seismic market peaked in 2013 at $8.2 billion and is expected to fall to $2.6 billion in 2016.
“Two thirds of the market have evaporated in just 3 years…”
The Spectrum chairman says that this data implies that two thirds of the market have evaporated in just 3 years. The seismic market is back to a level of activity comparable to the period 1996-2003, the years immediately preceding the last 10 year boom from 2004 to 2013. The key question is has the market now “normalized” after this 10 year exceptional boom, or are we at the bottom of a cyclical downturn from which we should expect a rebound, Rodland said.
“The answer is probably “yes” to both questions. The market is now probably closer to a steady state situation after a period of high “monopoly rent” in the industry but we are at, or close to, a cyclical low in the new “normalized” market. During 2016 or 2017 we will probably hit the bottom of this cycle but the next peak will be lower than the last peak in 2013. That is my prediction,” said the Chairman.
His company has seen a drop in seismic sales in the first quarter of 2016. The company says the reasons were restructurings in oil companies and budget uncertainties. Spectrum reported a $7.9 million net loss in the quarter and expects the near term outlook to be uncertain with oil companies cutting back on exploration activity. In the first quarter of the year, Spectrum invested around $27 million in Multi-Client library, down from 13 million in the corresponding quarter a year ago.
Never waste a recession
In 2015, Spectrum bought Fugro’s Multi-Client seismic business for $115 million, thus becoming the largest MC 2D provider in the world and the 5th largest
player in the MC 3D business. The chairman has said that the move was made a year ahead of the expected consolidation within the seismic industry, and has called for more.
He said: “I am convinced that the Fugro deal will be viewed as a key milestone for Spectrum and one similar to the transformation of the company back in 2011 when we bought the CGG 2D library. But buying Fugro was like buying a new private boat in October; it won’t be until next summer before you can demonstrate to your neighbours and friends that you made a good deal.”
Providing his take on the need for further consolidation the Spectrum Chairman said: “The industry has the combination of relatively short term contracts,
a homogenous product (most seismic players would argue they have a technological edge, but in reality the differentiation is minimal) and a fragmented
supply side. These factors are all arguments for further consolidation.”
Rødland added that Spectrum would continue taking part in further consolidation: “The goal is for Spectrum to emerge stronger, more competitive and as the preferred supplier when the market improves again. Never waste a recession. ”
On the potential rebound of the seismic market, the chairman said that it was still unclear exactly when spring will arrive “but most likely 2016 will continue
to be “winter””
He then went back to driving analogies and ended with: “Driving “Highway 1” implies using the gear-shift, brake and accelerator effectively to ensure the ride is as smooth as possible so you can enjoy the view at the same time. We believe the view will become more and more appealing for those stakeholders (customers, suppliers, employees, banks and investors) riding with Spectrum over the next few years.”