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Input/Output, Inc. (IO) |
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CEOCFO Current
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This is a printer friendly page! Input/Output, Inc. has recognized the
need for high quality, high resolution data and has developed new digital sensors to replace
conventional analogue sensors BIO: Input/Output Inc. is an
industry leader in the design of seismic data acquisition system technology and the only
independent manufacturer to provide a complete portfolio of equipment for seismic surveys.
I/O’s products – recording systems for use on land, in the transition zone and
offshore, and associated energy sources, positioning systems, receivers, cables and
connectors – are deployed throughout the world, where geoscientists record seismic
data to locate and characterize oil and gas deposits. I/O is adding to its tradition of
delivering customer value through technology by focusing its research and development
efforts on increasing channel count capabilities, integrating radio and cable telemetry,
developing light-weight sensing equipment, integrating seismic design for multicomponent
imaging, and integrating pre-processing and post-processing software capabilities in the
data acquisition workflow. The Company has aggressively restructured to meet
current and expected market conditions while remaining focused on commercializing new
technology that will address customers’ most critical value drivers. Despite these
dramatic circumstances and challenges, the Company is positioned as a more efficient
organization, better capable of delivering new technologies to the worldwide energy
industry. I/O continues to devote substantial resources to research and engineering.
I/O’s vision is to provide industry-leading seismic products, solutions and services
that enable better, more cost-effective exploration and field development decisions. I/O
continually focuses its technology on improving the quality and resolution of images
obtained from seismic data. CEOCFOinterviews: Mr.
Peebler, where was Input/Output when you became its CEO and what changes did you
orchestrate? Mr. Peebler: “I have been on the Input/Output board since 1999. What attracted me was my interest in geophysics and the understanding that I was working in an important sector that I believed was going to be a major contributor to the next wave of geophysical imaging. I saw a company that was very well positioned to take advantage of that technology once we get it to the next generation of imaging, which was my original reason to join the board. Since 1999, the geophysical industry has continued to almost collapse. Through that period, we continued to fund an R&D project called ‘VectorSeis,’ which I strongly believe will be a major contributor to finding oil and gas. When Tim Probert left, I had thought about joining the company as CEO, and then the board approached me. That was one of those moments where I just could not say no. I have a passion for our industry and technology and I enjoy building new markets.” CEOCFOinterviews: Why is there a depression in the industry? Mr. Peebler: “If you look at 3-D seismic, that cycle started almost twenty years ago. The first geophysical technology was called ‘2-D’ which was a flat image like an x-ray or a slice of the earth. The advantage of 3-D is, by effectively taking slices or an array of measurements, you end up seeing a volume or a cube. It is much easier to identify structures and create a huge revolution in finding new oil and gas reserves. Back in the early eighties the Gulf of Mexico was being called the Dead Sea. 3-D brought new reserves and continues to bring reserves into the Gulf of Mexico. 3-D is reaching the point of maturity, meaning that there are still innovations going on in 3-D. Most of your major reservoirs in the world have been shot with 3-D. There has even been a lot of spec 3-D shooting in lower quality areas to find additional reserves. We are getting to the end of the curve where the current 3-D technology is not enough to unlock the next round of reserves. The main exception to that would be in some of the emerging countries like China, the CIS and places like the Caspian Sea where they have not done a proper 3-D evaluation. So there are still places for 3-D to go that have not been applied. The growth phase is beyond us and the equipment and service sectors are built for the growth period. I think they got into spec shooting assuming they could sell that data, but when they did that they ended up with mediocre data. Now there needs to be another round of high-quality, high-resolution data that can solve new problems.” “I think we are right at the beginning of the third wave; we went from 2-D to 3-D and now to the third wave, which we call vector full-wave. VectorSeis is one big change as you are moving from recording with an analogue sensor to a digital sensor. More importantly, we have full-wave, which includes another acoustic measurement called shear seismic. I believe that it is a combination of that new information and data that will solve a lot of the problems that we currently have, which we must solve in order to find oil and gas. These problems are all the way from better resolution, to being able to identify reservoir fluid types and lithology types. It is getting harder to find oil and gas, so you have to solve more complex problems to do that. I would say that the vector full-wave, including multicomponent seismic, is about where 3-D was in the early eighties. At that time, about 98% of the data being collected was still 2-D, and you had seismic contractors going broke as well as too much data in the data libraries. Companies did not understand 3-D; they thought it was too complex and did not know how to interpret it. The beauty of Input/Output is that we have invested well over fifty million dollars and are approaching a hundred million on this next generation digital sensor. Right at the heart of this third wave is the measurement itself. As a company, we have a technology that will indirectly be responsible for finding billions of dollars of reserves in the future. We have to decide how to take that technology and create value propositions around it, including new equipment sales and potential services and things we could do with it, to participate in that value creation and make sure we extract the proper amount of value from what we bring to the party. That is the challenge that we are sitting with and the kind of challenge I enjoy.” CEOCFOinterviews: Do you need to convince the seismic companies or the users of the seismic? Mr. Peebler: “I believe you have to convince the users of the seismic. The seismic contractors themselves seem to be confused. On the one hand they are looking for another wave of technology that will help build their business and at the same time most of them, particularly the more traditional western contractors, have cash flow and profitability problems, and to think right now about retooling and making capital investments is very difficult for them. I think the only way for the market to develop is to create a pull market so we have to go the end users and educate them both on the merits of our technology, and we must start building a brand around our technology. It is like what the pharmaceutical companies have done with their commercials on television telling us that if you have a backache, here is a medicine you have to ask your doctor for. We have to do the same thing with geoscientists and executives of oil companies, by saying, ‘You guys are in the business of finding oil and gas, you are short on prospects, here is a technology that will help solve that problem and here is why.’” CEOCFOinterviews: How do you reach potential customers? Mr. Peebler: “I/O has historically been an equipment manufacturer and supplier selling to seismic contractors. If you look at our marketing and sales, it is really just seeing the world through the eyes of the contractor. We still have to do that because the contractor has issues of cost and liability and performance and all those things; all the way from having marketing programs that are directed at educating the potential oil company customers, to opportunities to sell directly to them in some areas. There is an emerging new area, which is primarily in marine, where people are looking at installing permanent sensors on the sea floor. The purpose of those sensors is to monitor the fluid flow in the reservoir. As they produce these reservoirs, fluids are flowing through them, but the reservoirs are not homogeneous or heterogenous so the fluid does not flow evenly. You end up with large pockets that are not drained because of permeability barriers and various things. If you can see that on an image, you can decide whether to drill another well or change production on another well. We think that is going to happen at the beginning for very large fields and parts of new developments. Today that is not the business of seismic contractors. We do not see any reason why we should not go directly to oil companies and participate in better understanding their needs and working with them to provide those services direct. That is a new and emerging as well as a long cycle business, but we are currently engaged with a couple of clients and having those discussions. We will be participating in and getting some of our sensor technology into those projects.” CEOCFOinterviews: When you sell a piece of equipment, is maintenance involved and what exactly do you sell? Mr. Peebler: “We sell an array of products. Our systems are a makeup of hardware and software, so if you are on the land, you have field crews that put out all the sensors. They have to have a sound source, so they will either use dynamite or they will use a VIBROSEIS® truck, which shakes the earth. With that system, we design and sell VIBROSEIS trucks. We sell geophones, literally hundreds of thousands per year, and they last about five years and then need to be replaced. We sell cables, which are a big business. There are huge amounts of cables that connect geophones back to the recording systems; there could be up to a hundred people out there moving all this equipment around. We sell system software and the controllers; often we sell it as a whole system and then there is a follow-up on replacement parts and maintenance business. The difficulty in the business is that the geophysical technology cycles are long. The beginning of the cycle is a pull market where you have to spend a lot of time, effort and money to convince people to use it. You finally hit that early or late majority population and you get a nice run for about six years. It then typically flattens out and the contractors get conservative and do not buy anything. Therefore, you have a feast or famine cycle. We are trying to break that cycle by increasing the things that we do and getting into areas where we have more recurring revenue. For example, if we get into the production monitoring business, we can install systems and be involved with them almost continuously for the life of the reservoir. Whereas in the exploration phase, they go out and make the measurement and that is it. We are looking for places to expand our business and have new recurring revenues. We have recently purchased a company up in Denver called Axis Geophysics, which does processing. The attraction for us in processing is that you acquire data with the sensor, and you have to process the data to turn it into an image that the geologist and geophysicist can interpret. We have always missed out in that middle step; we have typically built systems to collect the data but we never built systems to process the data. Now that the sensor is digital, it is such a natural extension for I/O to be involved in processing because there is such an integration opportunity. If you really understand the sensor, you can understand how to process the data coming out of the sensor. That is a service business. After they shoot the data, they process it and reprocess with new algorithms, so it is a continuous business and it also gives you a more intimate relationship with the client. That is an area that will probably grow over time.” CEOCFOinterviews: Are your facilities manufacturing facilities? Mr. Peebler: “We do have manufacturing facilities, although we have been getting out of those rapidly and outsourcing the manufacturing. We are shifting more toward technology and architecting. I would guess that well over 78% of our manufacturing now is done by others. We just recently moved all manufacturing for our cable business to Mexico. It was a huge change for our people, and most of the managers and business groups were very skeptical. Now people realize that we should have done it ten years ago because costs are lower, quality is higher and we have a lot more flexibility. Our goal is to do that whenever possible. It is a cyclical business and the more flexibility we can build into our fixed overhead, and the more we can reduce it, the better. That creates a need for new core competencies such as how to manage outsource partners, how do we get more into real-time, and how do we strengthen our ability to forecast. When it was in-house we could compensate by brute force. That is a big change for us and therefore I/O will be located in more places. We have also consolidated some engineering centers. Part of the growth of I/O has been internal organic growth and some of it was through acquisitions. When you acquire something you often leave it where you acquired it, for a good reason. We are now looking at places where we can bring those back into Houston or consolidate into different areas, and we will continue to look for those opportunities.” CEOCFOinterviews: Is there much competition in your industry? Mr. Peebler: “In the equipment and technology that we provide, there is really only one other full system suppler and that would be Sercel, which is a wholly owned division of CGG, a French geophysical contractor. There are still quite a few little niche players. In the last few years we acquired a few of those, which strengthens our portfolio. Each little individual company has a harder time to stay in business. The other big change we have seen is with the traditional western geophysical contractors, which would be companies like WesternGeco and PGS. All those companies are consolidating and struggling. On the other hand, there is a group of new seismic contractors emerging out of the eastern block countries and China. In fact, one of the largest geophysical contractors now is a company called BGP which is a Chinese contractor. They basically started serving themselves as part of the national oil company CNPC, but they are really setting themselves up as an individual company and now are reaching outside Chinese boundaries, and are in the Middle East and Mexico and are going to be up in Canada. If you are selling to international companies, they tend to be more oriented to buy a full system vs. parts and pieces. Further consolidation is also likely. I think the timing is good. I believe the worst is behind us and we will see a little more consolidation with the western companies but they have effectively been in maintenance mode for the last few years, so it will not take much for those guys to have to replenish and recapitalize a bit. There is an inherent upside with our historical current customers. We have these emerging clients in Russia, Poland and China. They are helping pull us through tough times. If we did not have those companies, it would be twice as bad. We have new technology that we can build new offerings around. We are positioning for a five to twenty year run again.” CEOCFOinterviews: What is the financial position of the company? Mr. Peebler: “We have a healthy balance sheet; the company has very little debt. On March 31, 2003 we had about $60 million in cash. We have a note to SCF Partners which was about 30 million dollars, of which we recently paid off half. Our goal was to refinance the balance of it. Our markets are slowly but surely improving. We are losing money right now but we are making great gains both from cost reductions and a slowly improving market. We are working towards getting profitable sometime in the second half and I am optimistic we will get that done and then it will be a question of what we will need to build the business we are envisioning. We are right in the middle of some strategy work on looking at the company and then we will see if we have enough of a balance sheet to support the growth that we are looking at. We are fortunate that we did not end up with a lot of leverage when the industry turned down.” CEOCFOinterviews: Why should potential investors be interested, and what should people know that perhaps they don’t realize when they look at the company? Mr. Peebler:
“Potential investors looking at the company should not see it as just an equipment
supplier. They need to put it into the context of what is going on in geophysical imaging.
The oil and gas business is driven by technology. Seismic imaging is right at the heart of
finding oil and gas. Even though the seismic contracting business has hit a tough time,
the demand for oil and gas is still going to go up about 50-60% over the next 15-20 years,
even with all the alternate energy sources coming on. Seismic imaging is going to be a
critical technology going forward. People who have that technology will be well
positioned. Potential investors should put it into the context of the industry and what
technologies drive the industry, and they will see it as a real opportunity.” Forward Looking Statements: The information contained in this interview contains forward-looking statements relating to the trends in the seismic industry and developments of the company’s products, services and future operating results. Statements contained herein are subject to certain risks and uncertainties that could cause actual results to differ materially from those projected. The words “believe,” “expect,” “intend,” anticipate,” variations of such words, and similar expressions identify forward-looking statements, but their absence does not mean that the statement is not forward-looking. These statements are not guarantees of future performance and are subject to certain risks, uncertainties and assumptions that are difficult to predict. These risks are discussed more fully in I/O’s filings with the Securities and Exchange Commission, which are publicly available at www.sec.gov or www.i-o.com. Readers are cautioned not to place undue reliance on these forward-looking statements. Each individual should perform an independent analysis before investing. The information contained herein is neither an offer nor a solicitation to buy any of the company contained herein. Investing in securities is speculative and contains a high element of risk. disclaimers |
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To view Releases highlight & left click on the company name! Input/Output Introduces Cable Version of VectorSeis System Four
HOUSTON, TEXAS (June 2, 2003)… Input/Output, Inc. (NYSE: IO) announced today the commercial release of the cable version of VectorSeis ® System Four™, a technology breakthrough in seismic data acquisition systems and the second in a family of I/O VectorSeis systems. Posted: 7/10/03 - CEOCFOinterviews.com
Torun,Poland and Houston,Texas (June 2,2003)— Geofizyka Torun and Input/Output, Inc. (NYSE:IO) today announced the sale to Geofizyka Torun of an Input/Output 2,100 channel VectorSeis ® System Four ™ for land seismic acquisition.
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