Companies supplying geoscience and seismic data services are the supply industry that will suffer the most as a result of the Covid-19 global pandemic, according to business intelligence company Rystad Energy.
Companies supplying geoscience and seismic data services are the supply industry that will suffer the most as a result of the Covid-19 global pandemic, according to business intelligence company Rystad Energy.
Seismic revenues are estimated to fall this year by 51% year on year in a $30 Brent scenario and by 77% if Brent falls to $20.
The forecasts are driven by considerable revisions in exploration spending and delayed licensing rounds by many governments in response to low oil prices. Under the new market dynamics, Rystad expects exploration spending to drop by more than 20% from 2019 levels, with at least a 12% decline in offshore exploration drilling alone.
‘Within exploration activities, the hardest-hit area will be the acquisition of new geological and geophysical studies in recently acquired blocks and work on yet-to-be-approved exploration wells,’ said Rystad’s report. ‘As for the ongoing offshore projects, logistical challenges caused by travel restrictions and quarantine rules are impacting crew changes for offshore vessels and could result in completion delays that could severely hit the balance sheets of small and medium-sized companies.’
Global spending on seismic and G&G studies in 2019 was around $9.3 billion, but Rystad forecasts that it could fall to $4.6 billion this year under a $30 a barrel scenario and $2.1 billion under a $20 scenario. Spending would continue to decline in 2021 and 2022 if oil prices continued to remain at the $20-30.
‘Seismic companies across the board have started to adjust their business plans to better prepare themselves for this downturn. Most companies have implemented cost-cutting measures which include layoffs, furloughs, cold stacking of vessels and general cost reductions,’ said Rystad energy oilfield service analyst, Binny Baggs.
In general, Rystad said that it expects multi-client seismic companies to be able to adjust to the current downturn more efficiently than the seismic data acquisition companies, because of their lower cost base.
As a result, asset-rich companies such as Shearwater, PGS and Polarcus could struggle over the next year. ‘Many of the major multi-client seismic companies have in recent years implemented asset-light business models and we expect these companies to be able to quickly adapt to changes in demand. Since these companies charter the vessels they need, they can control their level of activity and protect their cash flows,’ said Rystad.
‘On the other hand, companies which operate on the contract data acquisition model with their own fleets, are likely to be severely impacted, with some contracts already getting cancelled and further activity expected to decline. It could become tough for these companies to maintain their fleet.’
Baggs added that the industry may have to adjust to lower contract pricing and vessel charter rates for ‘some time’.
‘There are turbulent times ahead for small and mid-sized businesses that are heavily invested in offshore acquisition as they are more likely to become victims of bankruptcies and distressed asset sales. To survive, the market may come back again to lower contract pricing and vessel charter rates for some time, as the service companies will prioritize to cover their operating costs.’
