By Florence Tan and Gavin Maguire
SINGAPORE (Reuters) - A growing fleet of ships is scanning oceans in search of new oil and gas fields as energy companies, now with more cash thanks to stronger crude prices, gradually resume spending on seismic services after a four-year downturn.
A doubling in the area contracted for seismic work in the first quarter this year from the last three months of 2017 has injected optimism into surveillance firms, with a global fleet of about 24 vessels, most of whom struggled to survive in the past years.
But they say the road to recovery remains bumpy with producers big and small not keen on drilling for new reserves unless oil prices, which have more than doubled from 2016 lows, stay high for at least a year.
Still, with crude prices stabilising well above $60 (£45.35) a barrel in the past six months, companies including mid- and small-sized independents such as Woodside Petroleum Ltd (AX:WPL), Kosmos Energy Ltd (N:KOS) and Tullow Oil PLC (L:TLW) have helped boost demand for surveillance.
The total area tendered by upstream companies for seismic work doubled to 40,000 square kilometres in the first quarter this year from October-December last year, said Duncan Eley, chief executive officer at Polarcus (OL:PLCS) which owns a seismic fleet.
"That's positive in isolation," said Eley, keeping his optimism in check even as he pointed to a busy fourth quarter for geophysical work in Asia Pacific, particularly for gas with demand forecast to soar in coming decades.
Gas projects in Myanmar could take two to three vessels from the global fleet, while there are also potential activities in Malaysia, Australia, India and Papua New Guinea, where Exxon Mobil (N:XOM) and Total (PA:TOTF) plan to feed more gas into their existing liquefied natural gas infrastructure, Eley said.
That marks a stark change from the dark days of 2015 and 2016 when orders for geophysical survey work came to a grinding halt as oil prices plummeted from over $100 a barrel to less than $50.
Petroleum Geo Services (PGS), the world's largest seismic operator, was also seeing better opportunities now than last year.
"The recent increases we've seen are primarily driven by Africa and Brazil when it comes to bidding for contract work," said Bård Stenberg, PGS' senior vice president for investor relations and communication.
Graphic - Global seismic fleet gets put back to work after harrowing 2015-16 market downturn: https://reut.rs/2IOPLcb
Demand for geophysical data at producing oil and gas fields, also known as 4D seismic survey, has also increased as explorers sought to maximise output from these assets, the two executives said.
PGS expects to secure between 20 and 25 4D seismic jobs this year, up from 16-17 in 2017, Stenberg said, with most of it located in the North Sea, West Africa and Brazil.
OIL PRICE IS KEY
The increased work should help improve the company's earnings which remain well below pre-crisis levels.
PGS's current margins on its contracts for seismic ships are breakeven on EBITDA (earnings before interest, tax, depreciation, amortisation) basis, versus EBIT margins of nearly 30 percent in 2013, said Stenberg.
For earnings to grow and for producers to start drilling for new resources, oil prices will have to hold at current levels for at least another 12 months, company executives and analysts say.
"For us, more than $60 is a positive and more than $70 is a bonus in terms of our clients' sentiment," Eley said.
Right now, financiers "would rather see funds go towards development activities rather than exploration," said Readul Islam, senior analyst at Rystad Energy, adding drilling can cost far more than collecting seismic data, running up to hundreds of millions of dollars for a well.
"At least for the next year or so companies will run their economics on projects around $60 oil, so investment in greenfield projects will not change that much," said Kevin Robinson, vice president of Malaysian oil and gas service company Sapura Energy (KL:SAEN).
The global flood of U.S. oil is also limiting interest in finding new oil and gas reserves, and restraining the rush for geophysical surveys.
The United States is on course to be the world's largest oil producer this year, overtaking Russia and Saudi Arabia, spurred by its growing shale oil output and exports.
"There's no question that there's a good sense of optimism and confidence is backed by the (oil) price," said Visal Leng, the Asia-Pacific President of oilfield services provider Baker Hughes GE.
"But having said that, we see that U.S. production will continue to be a bit of a disruptor in global supply."