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Offshore Support Journal

Offshore Support Journal

Seismic specialists sense light at the end of the tunnel

Mon 01 Aug 2016

Seismic specialists sense light at the end of the tunnel
Jon Reinhardsen: “PGS expects market uncertainty to continue through 2016”

Marine seismic contractors say the market remains challenging and is likely to remain so until 2017 at the earliest, but cost cutting and operational efficiencies are paying off

Well known marine seismic contractors such as PGS and Polarcus say the gradual recovery in the oil price means that they are starting to see early signs of market stabilisation and improving sentiment, although there is a long way to go.

“We believe that this has started to impact our multiclient performance positively,” said PGS, when it issued its most recent financial statements in July 2016. It said the marine contract market is still characterised by very low pricing, “but here too we see indications of more predictable patterns in customer survey planning and contracting processes”. PGS also noted that, due to vessel stacking, the supply/demand balance for seismic vessels has improved significantly since mid-2015.

“Our liquidity position is adequate, and there are no material debt maturities until late 2018,” said the president and chief executive officer of PGS, Jon Erik Reinhardsen. “With an amended maintenance covenant for our revolving credit facility, we have strengthened our ability to navigate beyond the trough of this cycle and created a substantial time window to address 2018 refinancing needs in tune with how the market develops. We continue to focus on what we can control through relentless sales efforts, strict cost discipline, operational excellence and capitalising on the youngest and most productive fleet in the industry.”

Mr Reinhardsen said the low oil price and reduced oil company spending continue to have an impact on demand for seismic vessels. However, despite some oil price recovery and signs of improved market sentiment, PGS expects market uncertainty to continue through 2016.

Announcing its second-quarter 2016 results, Polarcus said it had revenues of US$67.9 million, up 7 per cent from the first quarter of 2016. The company had multiclient revenues of US$26.5 million, with a pre-funding level of 205 per cent. At US$55.2 million, gross cost of sales was down 4 per cent from the first quarter of 2016. EBITDA of US$23 million was up 27 per cent from the adjusted EBITDA in the first quarter. The company said it had secured three contract awards since the end of last quarter, resulting in a backlog of US$150 million.

“Second-quarter revenue increased by 7 per cent over the first quarter, driven by strong multiclient revenue from a converted contract project offshore Brazil,” said Rod Starr, the company’s chief executive officer. “The project was carried out with high efficiency and strong cost control providing an extraordinary pre-funding level in excess of 200 per cent. At the same time, the contract business realised lower effective day rates, which were impacted by certain turnkey projects.

“To navigate the challenging market, we remain focused on delivering operational excellence and on maintaining our strong backlog. Our technical downtime remains below 2 per cent,” Mr Starr said. “Three new contract awards were secured during the quarter, with all representing new revenue sources. Two projects are located in countries that Polarcus has not previously operated in, and the third is to be acquired with our new XArray technology, our new acquisition configuration that enables increased efficiency while providing enhanced data quality to our clients, further improving our competitiveness.

“We continue to drive costs down to succeed in the current market, and as a result, we realised a further drop in gross cost of sales by 4 per cent from already low levels in the previous quarter,” he said. “As expected, total cash dropped during the quarter as a result of a working capital build-up, which should improve in the third quarter. The build-up is largely a result of extended payment terms negotiated earlier with one client, payment from whom was received in July.

“We expect the difficult market conditions to continue into 2017,” Mr Starr continued. “In this challenging environment, we will continue with our plan to focus on the areas under our control through maintaining strong fleet utilisation, aligning costs with business activity and executing projects safely and efficiently. In line with our core values, we will also continue to promote innovative ways to deliver excellence to our customers, which is key to the company over the long term.” 

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