Challenges and Opportunities in a Low-oil-price Environment
By Xianhuai Zhu, 1st Vice President Elect

While some of you may not recall the details, I was named 1st Vice President Elect of GSH, in September 2016, after Dr. Lee Bell was elected Treasurer of the SEG.  Before I accepted the position, Lee explained that my first-year’s focus would be concentrated on getting trained and working closely with Lisa Buckner, the 1st Vice President, in order to get familiar with the functioning of the Office.  

It has been a great pleasure working with Lisa and I have learned a lot from her, including how to order food for the technical breakfasts and how to invite speakers!  I quickly learned that the responsibilities of the 1st VP Elect are not quite as straightforward as one might imagine, and found that this role presents some challenges and opportunities; just like the oil industry always seems to do.

Our industry continues to suffer from low oil prices. At least 90 oil and natural gas companies with more than $60 billion in debt have filed for bankruptcy in 2015-2016, per the Haynes and Boone Bankruptcy Monitor.  The oilfield service sector has also been feeling the squeeze of lower prices, with at least 80 service companies declaring bankruptcy with a total debt default of $13.5 billion.   More than 350,000 jobs were cut by oil and gas production companies worldwide by May 2016, with the oilfield services sector bearing much of this burden.

Even though the oil price is slightly above $50 as the date of writing this article, it will probably not reach $60 until the 2nd half of 2017.  This is because, to a significant degree these days, the price is controlled by the shale oil and gas.  Once the price rises above $55 or higher, more rigs move in and produce more oil.  Consequently, oil prices go down due to the increased production.  Another reason that the price will not move up as quickly as we might like is that historically there has been a delay between oil price increases and the spending of operators and service companies.  Maurice Nessim, President of WesternGeco, pointed out at the SEG board meeting in October 2016 that the lag is usually about one year for oil companies and two years for service companies.

While this is indeed challenging, opportunities are also being created.  Many startup companies have come into existence during the downturn, including both operating and service companies.  In many cases, their vision was that in 2-3 years the oil price would rise beyond $60. At that point, they would have developed their own niche technologies and built good relationships with clients through their cost-effective and good-quality services.  I believe that this is a good analysis; in fact, to the point of being one of those entrepreneurs, myself.  Supported by venture capital, after having worked for ConocoPhillips for 9 years, I founded a new service company, Forland Geophysical Services (FGS), in early 2016.  As the name suggests, we focus on land, providing advanced technologies for imaging through complex near-surface structures in conventional and unconventional resource plays, such as in Permian Basin where statics, multiples and noise associated with surface waves, scattering and guided waves are problematic.  One day, I received an email from Mike Graul who is one of my best friends in Houston. He wrote: “Zhu, I was delighted to hear of your daring enterprise in these dark hours of the industry. You are to be commended for bravery under fire. I have a feeling it will prove to be a stroke of genius”. Thanks to Mike for his encouragement!

While facing many of the same challenges that all other service companies do, we are nevertheless optimistic about the future and have found that many doors open when one seeks to take control of one’s destiny.  I hope that other GSH Members with ideas they have nurtured for a long time will also consider seeking investors and bringing their own ideas to fruition.

One of the excellent opportunities GSH Members have is the ability to attend Technical Breakfasts, Technical Luncheons, Special Interest Group (SIG) meetings, and the Spring Symposium.  This year we will be honoring David Monk and Malcolm Lansley on April 12 & 13 at the Norris Conference Center during the Spring Symposium. The working title for this year’s theme is “Geophysical Acquisition: Advanced techniques revealing challenging targets”.  As a geophysicist with more than 30 years of industry experience and starting my career from a seismic field crew to data processing and interpretation, I have learned that seismic data acquisition is number one in overall importance.  This will be a must not miss event for knowledge sharing and networking!

When not “learning from Lisa”, I also serve on the SEG Board as a Director-at-Large and will continue in that role until the SEG annual meeting in Houston in September.  In April of this year, I will represent the SEG, and will work with Mr. Shouli Qu from SINOPEC and Mr. Bangliu Zhao from CNPC, to co-organize a “Foothill Exploration Forum” to be held in Nanjing, China. This forum will discuss the challenges and opportunities of geophysical exploration in foothill regions from around the world.  I believe that this Forum will provide opportunities for certain individuals and if you are interested in being a contributor, please feel free to contact me.