Schlumberger is getting out of the seismic data acquisition business. They are the biggest company in the $7B geophysical sector, having moved into first place over CGGVeritas in 2013 (according to us), so it is a bold decision to exit. And even though SLB’s public comments have included, “This has not been an easy decision to make,” we bet it actually was an easy decision. Here’s why:
The chart below is our firm’s trademarked SPEARS GEOPHYSICAL MARKET INDEX, an index that tracks the quarterly revenues of all the public geophysical companies around the planet – SLB, CGG, PGO, TGS, HAL, ION, COSL and many, many more. In Q1 2013, the Index was launched, equaling “1.00” that quarter, which is the same quarter that SLB moved into first place.
Spears Geophysical Market Index
In 2013 the global market didn’t grow… and oil was $100. In 2014 the market didn’t grow… and oil was $100. In 2015 the market collapsed hard, falling by almost 40%. In 2016 the market fell again by another third. And there it languishes still in 2018 despite oil prices rising from $30 to $40 to $50 to $60 and hinting at $70.
Almost every other SLB market segment began to grow in 2017, with strong indications of additional growth throughout 2018. But offshore seismic acquisition has been for SLB like dragging an anchor (pun intended).
We think SLB has been treating its seismic acquisition business like flotsam throughout 2017, allowing its main rivals to pick up significant market share in the last 12 months, so it is not a surprise that the business unit becomes jetsam with the new fiscal year.
But we see a bigger issue at hand: If oil companies around the world have not been gathering the data to identify our next hydrocarbon resources, they will not be drilling the test wells to prove up those hydrocarbons anytime soon, which means their ability to ramp up oil production will be delayed. Perhaps for years.
Gird your loins for high oil prices.