Seismic activity levels are looking respectable in many parts of the world, and for good reason. Oil prices have surmounted the $90-per-barrel hurdle, demand is on the upswing, especially in Asia, and a number of E&Ps are announcing record-setting capital-expenditure budgets for 2011.

This bodes well for the seismic business, which supplies the data and images that are essentially the heart and soul of hydrocarbon exploration, as well as production.

Chip Gill, president of the International Association of Geophysical Contractors (IAGC), sums up the value of seismic: "We reduce and can even eliminate risk."

Steve Jumper, chief executive officer of Dawson Geophysical Inc., Midland, Texas, expands on this comment.

"We're in the business of reducing drilling risk and finding and development costs, so the more efficient we as an industry become and the better the images we provide, it stands to reason we'll help E&P companies reduce finding and development costs and enhance drilling programs," he says. "There's a win-win potential in what we do."

Boasting 59 years in the seismic business, debt-free Dawson applies its expertise solely to the domestic onshore arena. The company has 16 field crews, with 12 currently operating in every major onshore shale play in the lower 48 states. Jumper emphasizes that the bounce back from nine operating crews during the recent industry downturn positions the company to move quickly on opportunities and emerging technologies.

Anyone in the domestic seismic game would do well to start each day giving thanks for the now-ubiquitous shale plays that began proliferating only a few years ago. They essentially have proved to be the salvation of the domestic gas and oil industry. Other types of plays remain busy, but their action pales in comparison to the shales.

"The big difference in what we call a natural gas application and an oil application is more the operational side of the business," says Steve Jumper, chief executive officer of Dawson Geophysical Inc.

"I shudder to think where we'd be if shale plays weren't here," says Jim White, chief executive officer of F.T. Seismic Support Inc., with offices in New York and Texas. He just wrapped up a term as IAGC chairman. "There would be hardly any work going on."

When shale-gas plays first gained prominence, the thinking among many operators and observers was that a shale is a shale—i.e. find it, drill it and complete it. After all, these are resource rocks that feed hydrocarbons to other types of reservoirs. Seismic technology was viewed only as a tool to help confine the drillbit in the shale and avoid crossing geohazards.

Shale Applications

As the complexities and nuances indigenous to shales quickly became apparent, seismic data and imaging became essential to evaluate features such as fracture patterns, fracture intensity, lithology variations and permeabilities. Today, microseismic technology is sometimes used to monitor movement of hydraulic-fracturing fluid in the horizontal wellbores that are drilled in the bulk of the shale wells. Jumper thinks real-time monitoring of hydraulic fracturing is "out there," and industry is keeping watch.

Shale-gas activity remains steady, but not as robust as in 2007 and 2008, according to Jumper. As the disconnect between oil and gas prices increased, shale-oil plays or those with a high liquids content became the new darling of domestic operators, principally in the western U.S., as well as in South Texas, where the prominent Eagle Ford play continues to thrive. The switch in emphasis from natural gas to shale liquids has had minimal impact on seismic operations technology, however.

"The big difference in what we call a natural gas application and an oil application is more the operational side of the business," Jumper says."Natural gas shale plays tend to be in areas of difficult accessibility. Problems are the terrain, tree-cover canopy, urban environments, and small land-tract-ownership positions. You get into a higher level of third-party charges.

"Further west, in oil basins, you're mainly in open areas, with some terrain issues over the Rockies," he says. "You have more conventional operations, such as vibrators instead of dynamite."

Despite languishing natural gas prices and copious quantities of the fuel in storage, don't look for natural gas drilling to cease.

"There's been a lot of held-for-production drilling, and people are going to have to go back out and start doing more work," says Bob Peebler, chief executive officer of ION Geophysical Corp., Houston, which specializes in the equipment and processing part of the business. "Also, this is moving from people who have grabbed the acreage to where you have bigger guys coming in, like the Shells and the Exxons.

"There's ben a lot of held-for-production drilling, and people are going to have to go back out and start doing more work," says Bob Peebler, chief executive officer of ION Geophysical Corp.

"They're going to put a lot more technology on it as we're moving from a land grab to people who are going to have to make a business over a long extended time," Peebler notes. "Associated with that change, people are going back to do a lot more science, which bodes well for the industry, for North American contractors and for those of us selling technology and processing-interpreting kinds of services."

Early-stage seismic data acquisition in the shale plays was proprietary and entailed relatively small-scale shoots. Today, multiclient surveys covering sizeable landholdings are the trend.

Multiclient shoots in the U.S. are a big deal to Houston-based Geokinetics Inc. Approximately 80% of its backlog is international and roughly 20% is domestic.

"It's an important 20% to us, but it's tougher in the U.S., because seismic companies can't set themselves apart from each other, as the same equipment is available to all," says Dick Miles, Geokinetics president and chief executive officer. "There are no barriers to entry, so it's a tough market."

In turn, the company might be said to have tough requirements where multiclient work is concerned.

"We don't commence shooting on any multiclient work without 100% pre-funding, which means we have several customers out there willing to fund us," Miles says. "We have a joint venture with Geophysical Pursuit, which lets us double the amount of work we do, and halve the risk. They keep finding us pre-funded work; we're fortunate to have them, and our own internal people we got when we acquired PGS Onshore are competent at finding the right place to be.

"Doing multiclient work is similar to owning good real estate; it's all about location, location, location," Miles emphasizes. "You need to be where the interest is and also to have a big contiguous presence."

Miles notes that a 5% to 10% margin is about all the company can expect out of the crews that are currently working on proprietary jobs. However, he also comments that overcapacity in the U.S. market has abated, and margins on the proprietary jobs they are bidding now are in the range of 15% to 20%. Furthermore, he is seeing a lot of bid activity in the shales as well as other areas. Over a six-week period, the company signed up more than 985 square miles of multiclient work in Weld County in northeast Colorado, in the bustling Niobrara shale play, and then quickly booked another 644-square-mile multiclient shoot in the Niobrara in southeast Wyoming's Goshen County.

Contrary to what one might assume, the actual seismic-data-recording process represents only a small segment of a program. Miles points out that surveying, permitting and drilling tally about 70% of the cost of a seismic shoot and about 90% of the time it takes to actually do the job.

Seismic permitting in the U.S. is a thorny and expensive part of the acquisition process, according to White. It involves paying the landowner and sometimes the mineral owner (the two can be the same) a fee to acquire seismic over a specific tract.

"Rarely do you see prices fluctuate on permits," White notes. "In fact, the cost always goes up and is getting alarmingly high in my eyes, preventing some oil and gas companies from moving forward with their seismic programs. Rates have gone up about six times what they were five years ago; for example, a surface permit in South Texas is $30 an acre now compared to $5 only a few years back.

"Sometimes you pay the farmer more than you pay the acquisition company to shoot the seismic," White emphasizes. "We try to educate the landowners to the fact if they demand too much money for the permit fee, the program won't be shot—but it doesn't hit home."

The public figures prominently in the future for shale drilling and production and, in turn, seismic activity. White notes that new plays in particular have a learning curve for both the public and for government agencies. Hydraulic fracing, which is essential to economic production, is especially galling to many non-industry folks, who allege the injected fluid poisons drinking water, as well as causing other problems. This issue is especially acute in New York and Pennsylvania in the widespread, prolific Marcellus shale play, where in some instances the powers-that-be have halted drilling, at least temporarily.

"When you say this is the way we do it in Texas, they say you're not in Texas anymore—this is Pennsylvania, and we have rules," White emphasizes.

"We don't commence shooting on any multiclient work without 100% pre-funding, which means we have several customers out there willing to fund us," says Dick Miles, GeoKinetics' president and chief executive officer.

It likely will take more than town-hall meetings and varying PR approaches to change negative mindsets, particularly in places unaccustomed to oil-industry activity, where the citizenry may feel overwhelmed by the intense pace of seismic programs and drilling activity in new shale plays. Gill is quick to note, "A lot of town-hall meetings are only as good as the person standing there." Problems specific to shooting seismic in urban settings have also become a significant issue.

New Approaches

While lawsuits and regulatory issues are at the forefront these days, seismic companies are focusing on the future. New approaches to the data business are on the horizon.

"I see a lot of interest in using geophysics for a deeper understanding of the reservoir itself, with the goal of integrating reservoir information with drilling and completion technology," Peebler comments. "The integration between geophysics and engineering is paramount. The lead dog in this thing is still how do you optimize drilling and fracing, because that's where the huge costs are."

ION recently announced a 200-square-mile, 3-D multiclient program in the Marcellus, which it will manage and execute. The project will include multicomponent or converted wave data and also serve as a kind of laboratory to enable experiments in addition to deliverables to the oil companies. Peebler says it provides an exceptional place to sharpen acquisition and processing technology skills related to the shale plays.

"I shudder to think where we'd be if shale plays weren't here," says Jim White, chief executive officer, F.T. Seismic Support Inc.

Shales are hogging the industry spotlight, but the seismic folks and their industry cohorts also have other opportunities at hand.

"People are still pursuing conventional wells, and if you can find oil production, it will lean that way," Peebler says. "We see some deep exploration in south Louisiana, and people are bringing in depth imaging, and reverse time migration in some of these deep, more complex plays, especially around salt domes. We see that as a bit of a trend."

Another emerging trend suggests cables for land seismic recording may eventually be a thing of the past.

"We just purchased some OYO GSR cableless equipment, and we're getting more," Jumper says. "We believe we'll be able to operate more efficiently in different areas. I think we'll see the migration to a cableless world, but as an industry, we still have a lot of cable-system capacity and not just in the U.S. I don't think we're on the verge of a complete turnover."

Peebler concurs that land seismic acquisition is headed toward wireless versus cables, but questions remain about the pace of this transition. Among other issues, he notes there's the unknown about how long it will take for the cost of the new systems to be competitive with the cost of the old systems, and how long it will take to make wireless systems "bulletproof"' and fully efficient.

What does the seismic business look like for 2011?

"I think 2011 will be a better year for utilization rates," White asserts. "But the price of gas in shale plays will have a big impact on this."

Jumper sees some pricing improvements, although they have been modest to this point.

Ever the optimist, Peebler says, "I think 2011 will be better than 2010, which was a heckuva lot better than 2009. We have a little bit of wind to our backs, and that's a good thing." M

Louise Durham is a consulting petroleum geologist.