Seismic shock

Schlumberger recently announced that they are selling off their seismic acquisition business (branded as Western Geco), although they plan to remain in the seismic processing market. It is one of the few product areas which is unprofitable apparently. This capital-, equipment- and people- intensive business is a casualty of the low oil price, the industry drive to reduce cost and the downturn in exploration.

Seismic acquisition has become adept at riding out the cycles. In previous downturns, it survived by slashing costs, and operating at a loss or covering the cost of capital. When good times returned, they crank up the prices and make profits to compensate.

The move by Schlumberger is particularly worrying. Do they foresee prolonged low oil prices? Will it lead to a reduction in capacity and competition? It’s too early to say. Schlumberger have not revealed how the sell-off will work. We might imagine a piecemeal disposal of assets, sale of the whole business or sale of the onshore and offshore parts separately. With a continued interest in seismic processing, perhaps Schlumberger will look for a strategic alliance with the new buyer.

Despite past consolidations through mergers and acquisition, smaller seismic acquisition players continued to enter the scene. Being optimistic, this move might encourage new and innovative small players to come to the market.