Digging deeper

Speaking with Larry A Walter, Chief Geophysicist, Geospace Engineering Resources International (GERI), Dr Andreas Mayr, EURASIA Director of Exploration Department, WL Gore & Associates, Nikolai Baransky, Paradigm Geophysical President, Russia and CIS Operations and Kurt Schibli, Vice President Sales Region CIS1, Leica Geosystems AG, CIS learns more about the issues currently affecting the exploration sector.

Russia and the CIS region have made the news headlines recently. Do recent events concern you or is it a case of business as usual – how would you assess the current state of the market?
LW. Russia plays a critical role as a high value, high potential energy marketplace in a very complex, rapidly evolving, and in most cases, very confusing global energy sourcing picture. No one can claim to have precise insight into what will happen in the future. From a manufacturing viewpoint, OYO Geospace has demonstrated a long-term commitment to the region through our continual investment in OYO-GEO Impulse, a wholly-owned subsidiary based in Ufa, Bashkortostan, Russia. Since 1990 OYO-GEO Impulse has successfully manufactured international-standard geophone sensors and other seismic-related products for the Russian seismic marketplace. We plan continued investment in OYO-GEO Impulse. For instance, in 2006 we will significantly enhance the facility’s cable manufacturing capabilities.

Our commitment to OYO-GEO Impulse is a clear demonstration of our successful global business model – local companies offering superior products and services, operated by knowledgeable locally-based employees who have the most comprehensive understanding of what it takes to successfully compete in regionally (Russia and CIS) active energy markets.

From a technology systems provider viewpoint, one of the key issues we face is finding the financing to support technology development and the regionally-significant deployment projects needed to concretely demonstrate the extraordinary ‘value’ and increased production potential of our emerging technology. These are large, logistically and technically complex projects, requiring close cooperation among a number of specialised product and service providers. Field asset operators must begin to view reservoir surveillance technology as the investment necessary to achieve a ‘life of field’ value for their asset. The geophysical methods are proven and robust, and the reservoir surveillance technology we offer meets the challenges. Our existing real-world technology deployments in the West have already demonstrated that the value return attributed to these technical systems far exceeds their initial cost.

KS. The globally increased needs for energy are reflected in Russia and the CIS region with an increased demand for oil and gas. These energy sources are the only ones that can cover the fast accelerating demand in the short term. The recent events don’t concern us because we are convinced that every economical struggle will and can be solved as we learn from history.

AM. Despite the recent events in the CIS region we don’t have major concerns regarding the market. Russia seems to be more stable in comparison to the Central Asian countries. Overall, the region seems stable enough to allow for business development planning for the next five years. We plan to stay in the region and increase business by cooperating with local partners. Due to the current demand for energy and given the aging Russian oil fields, new exploration business in Russia will grow dramatically within the next 10 years.

NB. I don’t think that the gas dispute between Russia and Ukraine effects our business. We see that due to the high oil price the upstream service market in general is pretty active now worldwide and particular in CIS countries. We expect such situation to continue over the next couple years at least.

Do you think this may have a long-term effect on countries looking to the region for their energy supplies – the UK for example are looking ever more into nuclear as an alternative energy source to oil and gas from the region?
LW. Not being a direct energy supplier, our business model and outlook is somewhat different than that of oil and gas companies. Long-term, most countries are looking to diversify their energy sourcing portfolio. But hydrocarbon-derived energy will continue to be important for some time to come. That being said, the tremendous reserves in Russia and the CIS region insure it will be an active and strategic force in any global energy market. We view the location of our Russian manufacturing facilities as geographically strategic. Our location and manufacturing capacity makes us a strategically important product and service supply hub for the region’s geophysical operators. Energy prices are high and it appears that they will remain so for sometime to come. High cash flows for oil and gas companies fuel exploration and production budgets, supporting high activity levels which in turn drive demand for geophysical equipment.

NB. The situation with high oil price pushes a lot more investors to CIS market. Probably the best opportunities exist in Kazakhstan. In Russia this process goes slower due to still very burocratic and unclear procedures in getting new license blocks.

KS. Alternative energies will substitute oil and gas over time but the main focus will not be on nuclear energy. For most European countries nuclear energy is a sociopolitical hurdle. To develop other alternative energies, a lot of time and investments are required. We all have to accept that energy will become more expensive and that we have to use it more carefully.

AM. Most countries will try to further diversify their energy portfolio for different reasons (costs, availability, etc.). However, I am not sure if nuclear energy is an alternative with respect to the strong negative image it has. Given the long time-span from decision and planning to completion of a nuclear power plant (at least 10 years) and the low market share of alternative energy sources at the moment, the only realistic alternative for the next 10 to 20 years is oil and – with increasing market share – liquefied natural gas. Russia with all its known and potential deposits will play an increasingly important role in the worldwide energy supply.

What then are your experiences of working in the CIS region to date and what plans do you have for the future? What have been your biggest successes in the region?
KS. Leica Geosystems, as a solution provider, is well positioned for capturing, referencing, modelling, analysing and visualising spatial data, as they are required for selection, planning, construction and documentation purposes. We see an increased demand mainly for digital data, captured by both aerial and terrestrial sensors. Laser scanning in remote sensing is one of the main focuses in our activities as is terrestrial scanning of infrastructure objects with high accuracy. The full availability of GLONASS beside GPS will bring all users the advantage of fast and accurate positioning, wherever required.

Our biggest success in the region is that products from Leica Geosystems are no longer seen as very expensive. They are very competitive with regards to economical efficiency and reliability. And our customers honor our increased presence in the region and the support we deliver directly or through our local business partners.

NB. Paradigm came to CIS market in 1998. Since we started our business has increased almost 10 times. We consider this result as a great success. Now we operate mostly in Russia and Kazakhstan, we also have some activities in Azerbaijan, Uzbekistan and Turkmenistan. We see Caspian Sea region together with Eastern Siberia/Russian Far East as the most potential areas for future business where our technologies can be used very effectively.

AM. The CIS region is a very promising yet inhomogeneous market. The new Central Asian nations will need a different approach compared to the Russian Federation. GORE Surveys will overcome cultural differences by cooperating closely with local partners. Thus, we are at the heart of the market. Speaking the language of our customers in terms of business and culture will allow us to grow market share and develop new regions.

Our value to the exploration programme is shown by the fact that all of the exploration wells drilled on our survey results in Russia so far were correctly predicted. The latest success was the identification of an oil deposit previously unknown as a direct result of our technology.

LW. Russia plays a central role as a high value energy supplier in the global energy picture. Local companies who offer superior products and services and are operated by knowledgeable locally-based employees have the best ‘on-the-ground’ understanding of what it takes to successfully compete in the region’s active energy market.
Understanding this, OYO-GEO Impulse has been in operation since 1990 successfully manufacturing international-standard geophone sensors and other seismic-related products for the Russian seismic marketplace, and is supplying the actively growing regional demand for seismic equipment.
We have found that the countries in the CIS region have always been very advanced in the innovation, and scientific understanding of seismic imaging methods. Unfortunately the development and manufacture of seismic hardware within the CIS has been somewhat limited.

By working closely with the industry geoscientists in the CIS we can gain early understanding and acceptance of proven seismic technologies. By encouraging collaborations with our oil company support units, coordinating our operations and data processing alliance partners, and expanding our information exchange with our Russian business unit, we believe that attractive business opportunities will emerge in this region.

Key regional issues will include finding the financing to support the technology development and deployment projects necessary before the extraordinary ‘value’ and increased production potential of the petroleum resources in this region can be realised. The geophysical methods are proven and robust, and the reservoir surveillance technology we offer meets the challenge. Our existing real-world technology deployments have already demonstrated that the value return attributed to these technical systems far exceeds their initial cost

We are always actively seeking to participate in collaborative projects involving scalable seismic programmes on land, in the deep ocean, and in the producing well bore environments. Our growing portfolio of successful projects is definitively showing how strategic reservoir surveillance systems and the effective use of their resulting information leads to better reservoir asset management practices.

With this in mind, what advantages do your solutions provide over alternative products in the market?
AM. GORE Surveys provide the most advanced solution in surface geochemical exploration. Our technology is proven; GORE Surveys have been used by more than 100 oil and gas exploration companies in 40 major basins. GORE Surveys work in all climates and soil conditions. They are an excellent complement to seismic, e.g. for focusing the seismic shoot, but also applicable where seismic is not possible or effective.

With GORE Surveys, our customers can identify the presence or absence of hydrocarbons, delineate extent and verify seal. GORE Surveys allow our customers to evaluate more projects, faster. They can focus their seismic programme and prioritise drilling prospects.

GORE Surveys deliver more data than other geochemical techniques. A team of highly trained and experienced specialists work on the data. Sophisticated statistical solutions and a specialised laboratory ensure the quality and reliability of our data and make them superior to any alternative products in the market. That’s why all of our customers are repeat customers. In a nutshell, GORE Surveys save time and money.

NB. Paradigm as a company has started early 90th as primarily depth imaging solutions company with well known product GeoDepth. We were the first who began to use this technology in our region. Since that time GeoDepth became a standard tool for most of CIS companies. It allowed us and our customers to get much more detail and reliable seismic volumes in depth domain. I think this is our biggest success.

LW. OYO Geospace is the only company with a permanent sub-sea reservoir surveillance system currently in operation. In fact, our equipment and sensors in the BP Valhall ‘Life of Field’” system in the North Sea has been operational since 2003 and continues to operate as it was designed. Shell Oil was piloting a similar system until the project was interrupted by the 2005 hurricanes in the Gulf of Mexico. We have just announced the BP Clair field reservoir surveillance project in the North Sea, another retrievable sub-sea system of China. Additional large-scale permanent systems will soon be announced.

Each of these projects provides us with a huge base of practical field experience and knowledge about the design, manufacture, deployment and maintenance of permanent sub-sea reservoir surveillance systems – a critical technical asset that no other company can offer. In addition, our design and manufacturing facilities allows us to maintain tight control over the performance, reliability and cost of the sensor equipment. These are very large, very complex precision sensor systems and it is not possible to maintain the level of design and manufacturing quality required by ‘outsourcing’ the equipment manufacturing to third-parties.

In the borehole, Geospace Engineering Resources International has redefined reservoir surveillance technology. By focusing our deep industry experience and our robust engineering and manufacturing capabilities, Geospace Engineering Resources International developed a miniaturized multi-component borehole sonde string. This continuous, real-time, digital sonde string redefines digital full-wave VSP surveys and other wellbore seismic measurements. Borehole configurations of these tools for 3D VSP applications (up to 240 levels in 3C) may require only a single source effort over a large surface area. This ‘one-pass operation’ minimises the environmental footprint, improves environmental access, reduces field time, lowers HSE (health/safety/environmental) risk exposure, and reduces the overall operational costs of this valuable reservoir imaging application.

Due to our early technical and economic successes, we are experiencing a growing wave of recognition by oil and gas companies worldwide that reservoir surveillance infrastructure technology offers field-wide economic and operational benefits far too significant to be ignored. As the sole developer of the only permanent reservoir surveillance infrastructure systems currently in use, OYO Geospace, through Geospace Engineering Resources International, is focused on this growing high-reward opportunity.

KS. There are several reasons for our customers to select Leica Geosystems as the first choice provider. Our products are highly reliable and the solutions always meet the specs defined by us – “We do what we say”.

It is the combined and fully integrated use of different technologies that provides the customers a more efficient handling in all operations and applications. Leica Geosystems’ innovation efforts aim at one single goal: to understand and support customers’ workflow best and to increase customers’ productivity.

As a result, how have you seen demand for your products grow over the last few years – what are your projections for the immediate future?
LW. As you might expect from our answers to earlier questions we believe that reservoir surveillance systems technology (sea-floor and borehole) is being accepted and applied by increasing numbers of oil and gas companies.

Moreover, energy prices are high and will remain so for some time. We benefit because high energy prices not only drive demand for traditional geophysical equipment but also enables new technologies like our seismic reservoir surveillance solutions to gain traction, which in turn fuels our ability to invest in new and innovative research and development.

AM. Due to the great success of GORE Surveys in a variety of projects, the demand for our service has been experiencing an enormous increase in the last few years. We are confident to sustain this continuous growth in 2006. We are working on a long-term strategy for Russia and Central Asia. Strategic partnerships with customers and local partners will be part of this initiative.

KS. Over the last 12 months in the region our brand has received a higher market acceptance due to a better competitiveness in pricing, combined with an excellent reputation for the best quality. We believe we will further strengthen today’s strong market position within the next three years and achieve annual growth rates bigger than the market standard.

NB. During the past few years Paradigm was very much focused on developing new tools for reservoir characterization and volume interpretation. Those technologies are mostly used to explore existing oil and gas fields and give us the detail information to run the effective production of the field. The demand of such technologies is increasing over the last few years and Paradigm again was one of the first companies which began to use them in the region.

What’s your outlook for the exploration sector in 2006, what emerging technologies do you think will come to the fore?
LW. Earlier we mentioned that a growing number of oil and gas companies worldwide are beginning to act to capture and enhance ‘life of field’ value that permanent reservoir surveillance infrastructure (both sea-floor and borehole) can add to a reservoir asset. Even though we have been pioneering these technologies for several years with a few visionary oil and gas companies, most of the industry has been waiting on more concrete economic results – this is simply the way our industry adopts technology.

Results are coming in and have demonstrated the unequaled value of our continuous and real-time reservoir seismic systems. BP estimates that the 2003 installation of OYO Geospace’s permanent reservoir surveillance system at its North Sea Valhall Field (the first permanent reservoir surveillance installation in the industry) will add 60 million barrels of recoverable reserves to the field, will accelerate field production rates, and will significantly reduce future field development costs through fewer dry holes and less support services. These are significant economic benefits delivered by a permanent reservoir surveillance infrastructure that oil and gas asset operators are now considering in their ‘life of field’ asset development plans. We see a growing number of companies analysing these technical capabilities and actively adding them to their reservoir development plans. They now view it as a small investment to return a significant ‘life of field’ value.

AM. The exploration sector will grow due to the high demand of energy. The increasing oil price speeds exploration in new areas with higher risk like East Siberia or the Russian Far East. Not many completely new technologies will appear during the next 12 months, but the ones already available will develop more efficiency and precision and will become more accepted and used. Non-seismic exploration methods in particular will develop and grow fast. They will add to the results of seismic, or fill in gaps of the current seismic technology. As the global market leader in surface geochemical exploration GORE Surveys will be one of the key players in this field.

NB. As I said the exploration sector will stay very active in our region for the next few years. Besides the technologies that I already mentioned we will see increasing in new acquisition techniques like 3D/3C and 4D seismic. Paradigm has all modern tools for processing and interpretation such kind of seismic data.

KS. Customers are asking for even more combined technologies like Lidar or Digital airborne sensors in combination with diagnostic devises. This leads to a high potential for customised solutions. We can also expect ongoing improvements in the resolution for remote sensing and satellite imaging in general. As time is money, faster and more accurate data acquisitions and data processing are the goals of every customer. I therefore don’t expect revolutionary new technologies within the next couple of years, but a special focus will be placed on improved data handling through all the customers’ work processes.