SmallCapNews | Back on the map: how Offshore Hydrocarbon Mapping found itself again

Search Site

Latest News

Features

Company Profiles

About

Advertise

Back on the map: how Offshore Hydrocarbon Mapping found itself again

20 November 2009

Richard Cooper recently secured a $2.5m contract from a Chinese oil company to look for new discoveries in West Africa. While the new cash will undoubtedly be welcome, Cooper is equally keen to use the deal to help him begin rebuilding the reputation of a technology that has divided the oil and gas industry for many years.

Since taking the reigns as chief executive of AIM-listed surveying specialist Offshore Hydrocarbon Mapping plc (OHM) in July, Cooper has been kept busy. Not only has he been forced to deal with eye-watering volatility in the oil and gas market, he has also needed to get the company’s costs under control and breathe new life into the reputation of its flagship technology – controlled source electro-magnetic (CSEM) surveying.

Richard Cooper.jpg

OHM's CEO, Richard Cooper

Cooper acknowledges that while OHM has had to make some tough decisions in recent months, the exploration ambitions of its customers are beginning to grow and the company is now on a much surer footing to take advantage of interest in its technology.

Integrated technology

A geophysicist by training, Cooper headed up a seismic data specialist called Rock Solid Images for ten years before OHM acquired it in 2007. Throughout the turmoil of the last two years that traditional seismic and well data business has continued to prove resilient. It is the CSEM side that has proved more troublesome.

The two companies first came together back in 2005 when they started collaborating on technology that blended seismic data, well data and CSEM data in order to get a much more accurate view of potential oil and gas discoveries.

While traditional seismic and CSEM surveys achieve different results, the way the surveys are carried out is actually quite similar. Seismic surveys generally involve setting off an explosion either on land or in water and then measuring the sound waves as they bounce back from reflective layers in the earth. CSEM replaces the explosion with an electrical source that creates a giant electro-magnetic field which propagates through the earth and is then measured back up at the surface.

As their integrated technology flourished, OHM opted to buy Rock Solid for £10.4 million in August 2007 in an effort to resolve the issue of who actually owned the technology.

Cooper recalls that things became tough almost immediately after the acquisition, when the market’s perception of CSEM data became obscured by over-aggressive hyping of the technology.

“Back in 2002, when it came on the scene, CSEM was being promoted by some of the providers as almost like a magic bullet,” he said. “You could acquire CSEM data over a proportion of the earth and it would immediately tell you if you had hydrocarbons or not and where they were. It tuned out that it is just not that simple – the earth is a far more complicated place.

“There were very high expectations, particularly in the investment community. I think the oil and gas industry was a little bit more sensible and willing to be convinced. But there were some very large forecasts made for the market size, which turned out to be not true.”

Unsurprisingly, the valuation of OHM and its competitors suffered badly and revenues fell away, leaving the company struggling to redress the situation.

Cooper reckons that one of the main problems was that the CSEM technology was being promoted as an alternative to seismic data “It is really a very important companion technology to seismic,” he said. “You use it to add value to seismic as opposed to replacing the seismic – that’s the way that we are pitching the technology now and that’s how the oil companies are most comfortable using it.”

These days, Cooper’s explanation of CSEM is simple. While seismic data struggles to find fluids (such as hydrocarbons) under the earth’s surface, CSEM is much more capable. This means a joint-approach is very effective.

“The beauty of integrating the two methods is in using the seismic data to give you the basic structural information,” he said. “The question is then whether there is what engineers call a ‘charge’ – is there a hydrocarbon charge at the location. You can use CSEM to answer that question with some degree of certainty.

“It is an integrated strategy and I think that will be the way you see this technology evolving and used in the future.”

Modest goals

While the reputation of CSEM data has been put under scrutiny in recent years, oil giants such as Exxon and Shell have continued to use the technology in their own oilfield analysis. Cooper points out that while oil majors can afford the capabilities to acquire, interpret and process the data in-house; the majority of companies need a specialist like OHM to fulfil the task.

Indeed, he says the recent contract to work with the Chinese Bureau of Geophysical Prospecting (BGP) in Equatorial Guinea, West Africa will hopefully be “a very positive result” by offering short term revenues and the long-term benefit of rebuilding confidence in the CSEM method.

The company has also fixed a long-term cash burn problem over its two sea-going vessels, the OHM Leader and OHM Express, by giving the vessel owner SeaTrans a stake in the company. In an unusual agreement for the industry, OHM is now using the vessels on a “pay-as-when-used” basis and is likely to enjoy easier negotiations with SeaTrans, which will be mindful of the longer-term value of its equity position in the company.

“We are comfortable that we have been through the worst, we have got all the issues solved and are looking forward to a brighter future now,” Cooper said. “Looking ahead, we have some modest goals. We treat every contract like gold and want to make sure that every customer turns into a real zealot; so that they like the technology, they are comfortable with it and they get a result. As with any business, you need to build that confidence.”

The good news is that with the new cost structure OHM can be selective about what it takes on – with an eye for projects that offer the chance for good, long-term relationships.

“That is the future of this technology – to very much restore confidence and build its reputation,” Cooper said. “After that, it depends on the size of the market – you’ll still hear a pretty wide spread of numbers up from a few hundred million to a couple of billion and we’re probably somewhere in the middle of that. But first we need to get back onto the growth curve again.”

Ben Hobson, SmallCapNews.co.uk