Third-quarter results show that times are tough for Europe’s geoscience firms, writes Martin Clark
The fallout of the oil price crash continues to be a drag on the performance of Europe’s geoscience firms. They have been the victims of reduced capital expenditure on exploration in the North Sea and in other producing basins around the world. The recent raft of results from major seismic contractors for the third quarter revealed continued weakness in the market, though there are signs that next year will be better. France-based CGG’s results highlighted its problems, with its debt pile totalling US$2.3 billion at the end of September. Reporting its Q3 results, the company said that while its fleet was still busy, the market outlook was still very challenging. “The context of rising crude prices did not yet translate for our industry in improved market conditions, which remain difficult,” said CEO Jean-Georges Malcor. He blamed the tough operating environment for substantially reduced Q3 revenues of US$264 million – down by almost 44% year on year. Net losses for the same period stood at US$88 million. Given its substantial debts, CGG is understandably focused on costs and containment, though this could take a while to filter through. The firm aims to keep its net debt below US$2.4 billion by the end of 2016 as part of an overall plan to address its capital structure. “We remain fully focused on strict cost and cash management and on preserving our liquidity,” Malcor said. More encouraging for CGG is that its reputation in the market remains strong and its services are still in high demand, though activity is largely being driven out of Europe. The company won a couple of new contracts in October for seismic shoots in Mexico and Mozambique. There is still work to be won in the European market, notably in frontier areas such as the Barents Sea. In September, Oslo-listed Spectrum began the acquisition of a new 1,800-square km multi-client 3D seismic survey offshore Norway in the western Barents Sea. The frontier area has attracted considerable interest from the energy industry in recent years. The new data will be available during the first half of 2017, ahead of the 24th Norwegian licensing round next year. Spectrum, which also posted losses when it issued its third-quarter results at the end of October, is likewise more upbeat about prospects going into next year, a common theme. Schlumberger’s WesternGeco also cited increased marine survey activity in the North Sea, resulting in a modest Q3 boost for its so-called Reservoir Characterisation Group. While much of its other activity was again elsewhere, it highlights that there is still business to be done offshore Europe. “Revenue was 5% higher sequentially due to increased WesternGeco marine surveys in the North Sea,” Schlumberger announced in its results update in late October, although its backlog fell on the previous quarter. The company was involved in the UK Oil & Gas Authority (OGA) funded seismic shoot to gather data to help spur more exploration on the UK Continental Shelf (UKCS). PGS, which also played a part in the UK government-funded project, was another company to cite “challenging conditions” in its third-quarter assessment. Its order book slipped to US$190 million at the end of September, down from US$245 million a year earlier. Amsterdam-listed Fugro also sees total spending contracting this year, citing a general market consensus, but flattening out in 2017. While the oil and gas sector still accounts for three-quarters of its work, it has been keen to diversity into other markets, including offshore renewable energy projects and land-based buildings and infrastructure. Dubai-based Polarcus, which is listed in Oslo, is also weathering the storm, citing high fleet utilisation in Q3. But it also recorded a drop in overall revenues during the same period. While its results were comparatively robust, it noted that the seismic market continued to look challenging in the near term with the expectation of reduced tendering and pre-funding activity during the coming northern hemisphere winter season. The company said it would continue to focus “on areas within its direct control”, though it has also enjoyed some success in the European market, notching up another 3D marine seismic acquisition project in September. There will be no quick fix for any of these leading seismic operators, with industry conditions remaining difficult and exploration capex down significantly from previous years. But they continue to hang in there and will be well placed to take advantage when conditions eventually improve.