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SES operates in the $7 billion seismic imaging segment of the global oil service market. Growth in the
seismic market is largely driven by an increasing demand for seismic surveys, the primary information
source used to collect subsurface formation data. Continued growth in oil and gas drilling activity is one of
the primary drivers in the use of seismic surveys and seismic equipment.
Increased Global Oil Demand
The energy industry is under significant pressure to find and replace reserves as the demand for oil and gas
continues to increase.
1 Steady Growth in Oil Demand: The International Energy Administration predicts an
approximate 2% annual growth in global demand to 2015.
| Global Oil Demand Projections (Thousands of bbl/d) |
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| Source: International Energy Administration. |
2 Long-Term Cycle: Economic growth in Asia, particularly in China and India, are expected to
drive and sustain long-term growth in oil demand. These Asian economies are expected to
increase by a combined growth rate of 5.5% per year from 2002 to 2025.
| World Gross Domestic Product (GDP) by Region, Reference Case, 1990-2025 (Billions of 2000 dollars) |
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Growth in E&P Expenditures
Strong growth in E&P spending is needed to maintain current production levels required to meet global
demand. The most recent data illustrates that despite significant growth in E&P spending, production has
remained relatively flat or even declining slightly. At the same time, production decline rates are modestly
accelerating, a trend that is difficult to reverse. As a result, global oil and gas companies will have to
continue investing in exploration and production to locate new reservoirs of oil and gas reserves.
1 Global E&P Spending: In a recent Lehman Brothers (“Lehman”) E&P Spending Survey, the 325
worldwide companies interviewed project 2006 E&P spending to increase 20% from 2005 levels.
Various other Wall Street firms approximate growth of 25% in 2006 and 12% in 2007.
| Lehman Brothers E&P Spending Summary ($ in billions) |
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2 Healthy Customers: Cash has become less of a concern for most oil and gas companies as they have
benefited from high commodity prices for a prolonged period of time. Oil companies have strong cash
positions and are looking to invest to increase their proved reserves.
The charts below illustrate the upstream and drilling spending needed to meet oil demand.
| Global Upstream Capex and Petroleum Consumption |
U.S. Drilling Expenditures |
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Robust Drilling Activity
Crew counts are a key measure of seismic data acquisition activity. Management believes that the seismic
market is improving as a result of historically high oil and natural gas prices and the strong growth in E&P
capital expenditures.
The charts below demonstrate that drilling activity has been growing as overall oilfield spending increases.
Global rig counts, another indicator of drilling activity, have also increased significantly from 2002 to 2005
and are projected to grow at a compounded annual growth rate of approximately 10% from 2005 to 2007.
Seismic crew counts are also on the rise from recent historical lows. These crew counts are still not at the
historical average 10-year levels, indicating ample room for growth.
U.S. Rig Counts: The U.S. rotary rig count is expected to increase by 14.0% from 1,381 to 1,575 from
2005 to 2006, and by 9.5% in 2007 to 1,725. Similarly, the U.S. land rig count is expected to increase by
16.4% from 1,263 to 1,470 from 2005 to 2006, and by 9.9% in 2007 to 1,615.
| U.S. Rotary Rig Count |
U.S. Land Rig Count |
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| Source: Baker Hughes and Lehman Brothers Estimates. Source: Baker Hughes and Lehman Brothers Estimates. |
International Rig Counts: The international rig count is expected to increase by 4.1% from 908 to 945
from 2005 to 2006, and by 10.6% in 2007 to 1,045. The international land rig count is expected to increase
by 4.2% from 643 to 670 from 2005 to 2006, and by 11.9% in 2007 to 750.
| International Rig Count |
International Land Rig Count |
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Source: Baker Hughes and Lehman Brothers Estimates. Source: Baker Hughes and Lehman Brothers Estimates.
Note: Excludes U.S. and Canada.Note: Excludes U.S. and Canada. |
U.S. Seismic Crew Count: The U.S. seismic crew count has increased by 14 crews, or 35%, from a recent
low in 2003 of 40 crews to 54 crews in 2005.
| U.S. Seismic Crew Count |
U.S. Land Seismic Crew Count |
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| Source: World Geophysical News Source: World Geophysical News |
International Seismic Crew Count: International crew count has increased by 19 crews, or 18%, from a
recent low in 2004 of 108 crews to 127 crews in 2005.
| International Seismic Crew Count |
International Land Seismic Crew Count |
 |
Source: World Geophysical News. Source: World Geophysical News.
Excludes U.S. and Canada. Excludes U.S. and Canada. |
Percent 3-D, and 4-D Seismic Crew Count: The percentage of 3-D or 4-D seismic crews continues to
increase as new technologies are further refined and developed.
| Percent U.S. 3-D or 4-D Seismic Crew Count |
Percent International 3-D or 4-D Seismic Crew Count |
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| Source: World Geophysical News. Source: World Geophysical News. |
Ranked as Most Important Technology: The 325 respondents to the Lehman Brothers E&P Spending
Survey ranked 3-D / 4-D seismic the most important technology influencing the E&P business. SES has
recently entered into an agreement with BP, Apache, and I/O to purchase the VectorSeis® enabled
FireFly™ land imaging system that will be utilized by Apache and BP as part of their seismic field trial
programs. FireFlyTM is the latest full-wave seismic recording platform in the I/O portfolio.
The chart below illustrates the most important technologies influencing E&P spending:
| Lehman Brother E&P Spending Summary: Most Influential 2006 Technology |
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| Source: Lehman Brothers E&P Spending Survey. |
Seismic Equipment Technology Overview
Overview: Oil and gas companies use seismic surveys as a source of information to identify favorable
geological conditions for oil and gas accumulation. These surveys are used to evaluate oil and gas
prospects and existing reservoirs.
3 Data Acquisition: Seismic surveys identify geological structures by measuring the reflective
properties of soundwaves to subterranean or subsea rock strata. An energy source transmits an acoustic energy pulse into the ground sending soundwaves downward. Depending upon the geological formations encountered, part of the energy is transmitted to deeper layers, while the remainder is reflected back to the surface. Sensitive receivers called geophones (land-based) or hydrophones (submerged underwater) receive and record the signals. The information is transmitted, amplified, filtered, digitized, and recorded on magnetic tape or a disk array.
4 Processing: The data is sent to seismic processors for analysis. Seismic processors use high capacity and high speed computers to convert the raw field data to digital, which can be read by special presentation and interpretation programs and software. Converting the raw field data into digital is called the processing phase of a seismic survey.
5 Interpretation: The processed seismic data can then be viewed by special software and programs that produce vertical and horizontal slice views of the earth. 2-D and 3-D slices can be combined to form dynamic cube views. 4-D capabilities allow the slices to be set in motion to view change over time.
| Typical Seismic Shoot |
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Types of Surveys: The oil and gas industry has used seismic technology since the 1920s, and these
technologies have improved considerably with the advent of sophisticated computing technology.
Beginning in the early 1990s, the use of 3-D seismic data grew dramatically. Additionally, 2-D seismic
data continues to be used in many areas where 3-D data acquisition is cost prohibitive or logistical access is
limited.
6 2-D Seismic Survey: 2-D seismic surveys were historically the standard in seismic data acquisition. They generally require less data to render an overview of the potential reservoir.
7 3-D or 4-D Seismic Survey: Data gathered from a 3-D seismic survey is best visualized as a cube of information that can be sliced into numerous planes, providing different views of a geologic structure with much higher resolution than is available with traditional 2-D seismic survey techniques. 3-D seismic surveys generally require a larger amount of equipment than 2-D surveys. By using a greater number of channels and flexible configuration, 3-D seismic data provides more extensive and detailed information regarding the subsurface geology than does 2-D data. As a result, 3-D data allows the geophysicists interpreting the data to more closely select the optimal location of a prospective drill site or oil and gas reservoir.
8 3-C (Full Wave) Seismic Survey: Full-wave imaging addresses the E&P industry's most challenging seismic acquisition and processing situations, including (i) complex acquisition environments, where surface and near-surface conditions make it difficult to deploy equipment or acquire broadband, high fidelity seismic data, (ii) complex reservoirs targets, including those that are fractured, thin, highly faulted or steeply dipping, and (iii) time-lapse (4D) reservoir monitoring, where high resolution images are required and ambient noise from production operations can interfere with the quality of the acquired data.
2-D Seismic Survey
3-D Seismic Survey
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