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Gold/Mining/Energy : Strictly: Drilling and oil-field services -- Ignore unavailable to you. Want to Upgrade?

To: chowder who wrote (73334)	9/13/2000 4:57:43 PM
From: chowder	Read Replies (1) \| Respond to of 95453

The Seismic Market in Review: Historically, the seismic market has been a leading indicator of offshore drilling activity. In the last decade this has somewhat changed with the dawn of speculative data acquisition and maintenance of data libraries by seismic companies themselves. Rather than waiting for oil companies to order acquisition surveys, seismic operators have ventured ahead of the oil companies based on expectations of future exploration and production expenditures. This was in part the result primarily of seismic companies' access to speculative capital to finance the projects and an effort to utilize the growing number of vessels dedicated to the market. This has led to the oil companies being in a stronger position with regard to negotiating the purchase of data. The oil companies are in a stronger position both in the case of acquiring data which has already been processed and in the case of ordering new data acquisition due to the number of available vessels. Another factor working against seismic companies is the recent move by major oil companies to merge, thus making the sharing of existing data and new data acquisition more prevalent. The success of the seismic market was less subject to the fluctuations in oil prices in past decades. When compared with other oil service sectors such as the supply boat and drill rig markets, seismic acquisition rates were not as volatile. This was due in part to oil companies always looking ahead to new projects even in down markets. In prior decades, oil companies had to anticipate and analyze the market better due to the lower amount and lower quality of seismic data available. In today's market, much more data is readily available from libraries which are kept by the seismic companies themselves. Since the oil companies know the information is available, they can wait to purchase the data until they see oil markets moving in the upward direction. This has been witnessed lately by an up swing in the sale of stored data in conjunction with the recently strong price resurgence in the oil markets. Contrary to past times, the latest upswing in oil prices has been slow to induce oil companies to hire more seismic vessels or order new surveys. The negative side of this situation for seismic companies is that the burden of financing the acquisition and storage of data has been shifted to them. In previous years, oil majors paid the bill for acquisition, then stored the information waiting for the market to justify further exploration and drilling. This shift was the result of seismic technology improving and the growth of seismic companies outpacing market demand for data. The downside was not seen in the seismic industry until oil prices declined substantially in 1998. During the first several years of the 1990's, oil prices remained fairly stable with an average price of roughly $17 to $20 per barrel and exploration and production were on the rise. Within the seismic industry, somewhere along that timeline, the amount of data needed exceeded the demand of the market, but this was not clearly evident until oil prices fell and drilling dramatically slowed. With lower oil prices, the larger oil companies have also been on a merger spree. Now that one oil company has replaced two or three, the number of clients for the seismic companies has declined. This same merger spree has effected the supply boat and drill rig markets giving way to more sharing of chartered assets on multiple projects, thereby reducing overall costs. Although this practice creates higher overall efficiency in the oil sector, the efficiency comes at the cost of the vessel owners who see lower utilization of their equipment. The merger spree among oil companies, both large and small, has also weakened the longstanding ties between some vessel owners and their clients. With more individuals moving from company to company or being laid off following mergers, it has been more difficult to maintain or cultivate new relationships with oil company customers. Although the seismic market is no longer the first oil service sector to rebound during oil price up swings, it nevertheless will recover given oil prices remain stable. Oil prices are now forecast by several organizations to remain in the mid-twenties per barrel during 2000 and into the foreseeable future. Recent price swings above the $30 per barrel mark have been temporary and are thought to be unsustainable over the long-term. Overall, demand for oil is rising worldwide and OPEC has (for the past year) successfully controlled output. OPEC is now becoming slightly weaker as members are less agreeable on set production rates. The recent weakness in OPEC seems in direct correlation to the higher oil prices. OPEC was able to put forward a strong program of production limits during 1998 / 1999 when oil prices were at 30 year lows. Since prices have rebounded, member nations have less incentive to act collectively, but nonetheless have shown their collective ability to act forcibly if necessary to maintain reasonable prices. Another positive factor for 3-D seismic is the growth in the natural gas market which benefits substantially from 3-D surveys. Also positive is the growth of 4-D seismic for mature fields which requires repeat vessel use. In general, the seismic market will recover based on consistent drilling fueled by stable oil prices, a reduction in the number of seismic vessels worldwide (i.e. vessels sold into other markets not to return), and a reduction in the operating costs of vessels through automation and design advances. The technology employed aboard seismic vessels has substantially improved over the last 10 to 13 years. While 2-D seismic (which measures height and depth) is still in use worldwide, 3-D seismic acquisition (which additionally measures width and provides a cube of spatially sampled information) is now widely used after its introduction over the last 13 years. Not long ago only about 10 to 20% of the exploratory wells were successful. Now overall, offshore drilling has a success rate between 30 to 50% according to industry estimates (estimates vary). In addition, vessels have gone from working only 1 streamer to up to 20. Although a direct comparison cannot be made between the number of streamers, one latest generation vessel can acquire the same data as was previously acquired by several vessels. In addition, 4-D seismic (which is 3-D plus an elapsed time factor and involves the use of seismic vessels along with permanently installed recording cables on the ocean floor above the reservoir) is now being used and involves repeated surveys of the same area in order to aid in the exploitation of oil reserves. Although 4-D is expensive and only in limited use by the oil majors, it is expected to grow due to its benefits related to increased recovery percentages. All these new technologies can be further employed given oil prices remain at adequate levels to support such programs. Current utilization of seismic vessels worldwide is reported to be in the region of 75% (or less). Of the larger class of vessels approximately 30 are reportedly idle. The US market is reportedly the strongest, but has been headed downward for almost 2 years; since shortly after oil prices fell in 1998. It is expected by industry analysts that it will take about 6 months from now for exploration and production to catch up and reduce the backlog of seismic data. Given oil prices are projected to be in the low to mid twenties per barrel on average over 2000, drilling should continue to expand. Slowly, as oil prices remain stable and drilling increases, sales of seismic data and the number of operating vessels will increase. Seismic companies will benefit worldwide from data sales and vessel employment, but not at the levels experienced previously any time in the near future. Oil company acquisition costs for 3-D seismic data are reportedly now in the region of USD 2,500 to 3,000 per square kilometer. In 1998, these same figures were reportedly USD 5,000 to 6,000 per sq. km. In 1990, the same figures where region USD 15,000 and above per sq. km. This drop in square kilometer price can be attributed to the greater number of vessels available chasing fewer jobs, and the greater productivity of new and refitted vessels. marcon.com dabum

To: chowder who wrote (73334)	9/13/2000 5:00:36 PM
From: BigBull	Respond to of 95453

dabum - OT gold I own AEM and FCX. Will buy either PDG or NEM real soon now. Got the dip I was looking for over the past couple of days in those institutional type miners. Will probably do the buy sometime tomorrow. In addition to many of the points Slider has made, I think an additional benefit favoring the sector is seasonal strength. BTW copper is in the midst of an old fashioned rip snorting runaway bull market. Glad I got FCX the other day. Been noticing the volume pattern in FCX recently? It's pretty powerful, imo.