The Worth of Valuations and Geophysical Data

In many industries, getting assets appraised from a third party is a standard practice. A house appraisal is an example of this and can have many parallels to the seismic industry. A valuation will determine the fair market value of a property. The city of Calgary is currently doing appraisals to determine a tax-assessed value of a property, and as a result, how much we as individuals need to pay in taxes. Property assessment is a standardized and accepted approach. Professional valuations are formal processes, conducted by experts in their field. In the example of real estate, banks and other financial institutions require the services of a professional appraiser. The asking price of a home is not sufficient enough to provide assurance on the true market value as it qualifies a value for the asset.

When selling a property, determining a price is important. In simple seismic industry terms, this can be 20-40% of the original AFE cost. Often, more factors go into determining price such as vintage, fold, area, etc.  In real estate, you compare similar homes in the area to what prices have been and pick a value close to this. More factors like square footage or renovations also help to determine the price. Regardless of what the realtor and the seller determine the price to be, the bank requires a professional appraisal to be done on the home, providing assurance that the price is correct.

Businesses get third party advisors from firms like PWC or KPMG to evaluate and act as quality controls for their financials every year. A significant amount of financial rigor goes into these processes to help strengthen the confidence of keeping both book and company value. In the seismic industry, the value of data is very significant, yet often neglected.

As part of their annual audits, companies should have third party valuations of their databases to help preserve company value. A third party review engagement is something corporations should be investigating this year and continue on an annual basis.

Sigma has been in the seismic data brokerage and management business for almost 50 years. Our five Seismic Brokers are responsible for over 50% of all licensing activity in the industry, and we manage close to 80% of all externally managed seismic. As a result, we have priced thousands of 2D lines and 3D surveys for potential sale, and have gained considerable insight into industry standard licensing prices and historic sales trends.

In addition, Sigma has performed hundreds of seismic database valuations in recent years, and is recognized as an industry leader in this activity. The method we use is recognized as the standard methodology for valuations. It accounts for the fact that the monetary value of seismic data is a combination of revenue that could be generated by licensing copies of the seismic to third parties, and the inherent value in the seismic because of its utility as an exploration tool.

Having a third party valuation of your seismic done by Sigma insures that it is properly recognized and valued as an asset in your company. It is an important step in preparation to proactively license your seismic and generate revenue for your company. It is also essential in preparation for potential asset divestiture. Today’s marketplace is tumultuous to say the least. The board of directors and management teams are faced with the difficult task of keeping shareholder confidence and maintaining company value in a low commodity market. Seismic is often overlooked and no book value has been placed on it. This is an opportunity for geoscientists to highlight the worth of geophysical data by getting third party valuations.