OHM Points to 'Lumpy' Market for Downturn
It has become apparent to the Board of Offshore Hydrocarbon Mapping plc that two issues are affecting our business at the moment: the lumpiness of market adoption and a pronounced seasonal imprint on the CSEM market. These issues mean that it is likely that the Company's performance will fall significantly short of the Board's expectations for the half year to Feb. 29, and for the full year to Aug. 31, 2008.
Controlled Source Electromagnetic Imaging (CSEM) is becoming accepted as a mainstream exploration tool, however, as we move through the adoption curve, order flow is proving to be lumpy – the same happened in early stages of adoption of 3D seismic. To date, CSEM technology has been used by predictable early-adopters and first-movers. There are good signs that the late majority will follow soon as significant budgets for CSEM are being created.
On a regional basis, driven by government acceptance of the technology in Norway and UK, oil companies are including CSEM in their planned work programs for new licenses and adoption is proceeding well. In other geographies, adoption has not yet moved at quite this pace which results in a significant seasonal bias to the overall CSEM market.
OHM had anticipated this seasonal downturn in demand for work and had planned to occupy its vessels on data library surveys, inter-leaved with our share of a number of significant planned proprietary surveys that we had identified and which were in negotiation.
Delays in getting permits for our South East Asian data library program resulted from the novelty of CSEM technology and cost recovery issues under Production Sharing Contracts has delayed this program until these are resolved. A number of large anticipated proprietary programs in the region have also been delayed contributing further to a gap in demand.
Anticipated proprietary work programs in West Africa have also been delayed and, in one case, cancelled. OHM Express's rapid transit-capability leaves it well placed to mobilize for these programs as they come to award and, until then, we are likely to continue creating future value in our Northern Hemisphere data library.
OHM currently has the capacity to field 2 crews with a 3rd planned to enter service in 2008. While seasonal demand in the summer has been enough to keep OHM and its competitor's crews occupied, winter demand is predictably much less and accordingly there is currently significant over-supply of capacity.
We believe that the OHM business model is flexible and robust enough to accommodate both the pace of adoption and seasonal fluctuations. OHM operates with a mix of long- term and short-term chartered vessels in order to accommodate such potential fluctuations in the market. In addition, our long terms charters allow us to significantly reduce charter costs during periods of temporary inactivity.
We have demobilized the crew from Energy Miner and put the equipment into storage, significantly reducing costs. We are ready to remobilize this crew at short notice as soon as market conditions improve.
OHM intends to bring its third crew into service as planned in early June to take advantage of the expected upturn. The vessel, OHM Leader, is currently undergoing conversion at a shipyard in Scandinavia. Research effort into the advanced combination of CSEM and seismic data is also moving forward supported by a number of major oil companies.
- OHM Scores CSEM Contracts in India (Mar 29)
- OHM Provides Preliminary Results for Half Year Ended (Mar 02)
- OHM Points to 'Lumpy' Market for Downturn (Jan 24)