CHAPTER 4 CUTTING YOUR PROSPECT DOWN TO SEISMIC: THE LEGAL ASPECTS OF CONTRACTING FOR SEISMIC SERVICES AND DATA

• Jurisdiction: United States

Oil and Gas Agreements: The Exploration Phase
(May 2004)
CHAPTER 4
CUTTING YOUR PROSPECT DOWN TO SEISMIC: THE LEGAL ASPECTS OF CONTRACTING FOR SEISMIC SERVICES AND DATA
Warren J. Ludlow ¹
Brigham Exploration Company
Austin, Texas

Warren J. Ludlow is General Counsel for Brigham Exploration Company, an active explorer in South Texas, West Texas and Oklahoma. Prior to joining Brigham in June 2001, Mr. Ludlow was Associate General Counsel for Frontera Resources Corporation, a small international exploration company with assets in the Republic of Georgia and Azerbaijan. Prior to Frontera, Mr. Ludlow worked at Hunt Oil Company as Senior Counsel, where he managed the company's litigation and performed the legal work for producing property acquisitions and divestitures and the company's South Louisiana exploration activities. Prior to Hunt, he worked at Pacific Enterprises Oil Company (USA) as Assistant General Counsel, where he was responsible for the day-to-day operations of the Law Department. Prior to Pacific, he worked for British Petroleum, and before that, at the Denver law firm of Kutak Rock.

He has a B.S. degree in Political Science and a J.D. degree from the University of Utah. He is admitted to practice law in both Colorado and Texas.

Introduction

Twenty-five years ago, oil and gas explorers were happy if a third of their exploratory wells turned out to be producers. But with the development of seismic techniques, especially three-dimensional or 3D seismic, today's explorationists are not satisfied unless the success rate of their exploratory wells is over two-thirds. Because of these dramatic increases in drilling success rates, most wells drilled today utilize the aid of seismic data.

This paper will give a brief description of what seismic is and how it is acquired and processed. It will focus on the legal aspects of seismic data, particularly the various types of contracts relating to the acquisition, use and licensing of seismic data, with special emphasis on clauses dealing with exceptions to confidentiality obligations, risk allocation in connection with seismic operations, and the right to sublicense and transfer seismic data. It will also examine whether seismic data qualify as trade secrets. In addition, the paper will include checklists of what provisions contracts dealing with seismic data typically contain.

Although the paper cites cases and legal treatises where appropriate, the focus is on the practical aspects of contracting for seismic data rather than an in depth legal analysis. Where there is some legal analysis, the paper tends to focus on Texas law. ²

A Brief History of Seismic in Oil and Gas Exploration³

The first known well drilled with the aid of seismic data occurred in Brazoria County, Texas, in 1924. The seismic used incorporated techniques first developed to measure water depths and detect icebergs, and later during World War I, the German's ability to locate enemy artillery positions by recording earth vibrations caused by the enemy's bombardments. The German military strategists learned that the speed of the vibrations varied through different types of terrain. By calculating these differences in vibration speeds, they were able to determine the location of Allied gun placements so accurately their first shot was usually a direct hit.

Advances in seismic technology followed. After Word War II, the invention of transistors and their replacement of vacuum tubes lightened the equipment of field crews, allowing them to conduct operations in more remote areas at a reduced cost. In the 1950's, magnetic tape replaced paper and led to the development of analog processing. Other inventions during the 1950's and 1960's included common midpoint stacking (also known as a common reflection point), and Conoco's development of Vibroseis, which substituted manmade vibrations or waves for those caused by explosives. Vibroseis further reduced the cost of obtaining data and is the preferred method in environmentally or culturally sensitive highland areas. ⁴

The next major revolution in the seismic industry took place in the early 1960's with the advent of digital technology. Digital field systems and computer technology improved in tandem, dramatically improving the volume and speed at which data could be acquired, thus increasing the amount of subsurface data available to an explorationist, and his or her ability to manipulate and analyze those data.

The third major revolution of the seismic industry was the move from two-dimensional (2D) to three-dimensional (3D) seismic. The concept of 3D surveying has existed from the early days of geophysics but the ability to implement the concept was hampered by a lack of accurate data and the computing power necessary to condense, process, display and interpret the data.

Exxon shot the first 3D seismic survey in 1967 over the Friendswood field outside of Houston, Texas. Then in 1972, six oil companies and GSI, a subsidiary of Texas Instruments, joined together for a research project to evaluate 3D seismic over the Bell Lake field in southeastern New Mexico. Data collection took about a month, but processing the data took two years. The project was a great success as the interpreted data confirmed the field's nine producing wells, condemned the three dry holes, and revealed several new drilling locations.

The development of the interactive computer workstation followed, which reduced significantly the time and cost of analyzing data and gave the explorationist the ability to view data in a variety of ways not possible with 2D seismic. ⁵

What is Seismic - Some Technical Aspects of Seismic

Every oil and gas lawyer should have a basic understanding of the technical aspects of seismic data, if only to be able to draft appropriate contracts. A detailed discussion of the science is beyond this paper. ⁶ Instead, the paper sets out some of the basic concepts of seismic acquisition, processing and interpretation, and the terminology used by explorationists, with the hope that it might assist the reader in conversing intelligently with those explorationists.

The nature of seismic data. Seismic data are acquired through a geophysical survey. Williams & Meyers defines "geophysical survey" as "the accurate measurement and recording of certain physical qualities in the outer rock shell of the earth, the object being to learn the nature and contour of underground geological structures. ⁷ Williams & Meyers list the principal geophysical survey methods as seismic, gravity, magnetic, electrical and geochemical. ⁸ A seismic survey, in turn, has been defined as "recorded information about the response of the earth to the input of mechanical energy from a controlled source. ⁹ The purpose of collecting seismic data in the oil and gas industry, of course, is to help the explorationist to: (i) understand the structural detail and stratigraphy of the earth beneath the surface; (ii) identify potential traps where hydrocarbons may have accumulated; and (iii) find direct indicators of hydrocarbons. ¹⁰

There are three main parts to any seismic survey: acquisition, processing and interpretation. ¹¹ In turn, the acquisition has three aspects to it: a controlled energy source, a receiver, and a recording mechanism. ¹² Most onshore surveys are conducted using either dynamite or Vibroseis as the energy source. When dynamite is used, the most common charge is 5 to 25 pounds buried at a depth most commonly from 60 to 120 feet. In Vibroseis, instead of dynamite, large trucks introduce seismic energy into the ground through large, vibrating pads. ¹³ These vibrator trucks are capable of imparting up to 60,000 pounds of ground force. ¹⁴ Offshore, the energy source comes from vessels towing a sonar array that shoots compressed air from an air gun. ¹⁵ Whether using dynamite, Vibroseis or an air gun, the point from which the seismic energy emanates is called a shot point. ¹⁶

Arrayed in a geometric pattern around the shot point are receiver stations (sometimes called channels, receiver groups, or simply receivers) generally made up of a group of listening devices called geophones for onshore surveys or hydrophones for offshore seismic operations. In a typical linear or 2D survey, a cable containing as many as 120 to 240 active receiver stations is deployed with each receiver station placed at regular intervals (generally 220 feet) containing groupings of 6 to 12 geophones placed in an array pattern (straight line, circle, box) centered around the receiver station. This imaginary line of receiver stations with its geophone groups generally extends in a straight line in both directions from the shot point. ¹⁷ The intent of the 2D survey is to acquire information relating to a slice or a plane of the earth's subsurface, often referred to as a seismic cross-section. In an areal or 3D survey, both the shot points and the receiver stations are arranged in a pattern other than a straight line so data can be collected over an area instead of a line, with the intent of obtaining a cube of data rather than merely a slice. ¹⁸ Often, but not always, the cables containing the receiver stations (called a "receiver line") are laid out side by side and parallel to each other with the shot points laid out perpendicular to the receiver lines forming a kind of grid. ¹⁹ A collection of receiver lines laid out in this fashion is called a receiver patch. The receiver patch is the active listening area into which data is recorded from each shot point in a 3D survey. Receiver patches are generally centered on the shot point and contain 8 to 12 parallel receiver lines separated by 660 to 1320 feet with each line containing 120 to 240 receiver stations and each receiver station containing 6 to 12 geophones.

In both 2D and 3D surveys, the job of the geophone or hydrophone is to convert the mechanical energy emanating from the shot point into an electric current that corresponds to the...