Guyana gives and gives
A sixth discovery off the country's coast points to further oil riches at ExxonMobil's Stabroek Block
Guyana is the gift that keeps on giving for ExxonMobil and its partners drilling for oil in the tiny Latin American nation's waters.
In early January, the consortium, which includes Hess and state-owned China National Offshore Oil Corporation, struck again in Guyana's waters at the Ranger-1 well, the sixth significant discovery in the vast 6.6m-acre Stabroek block. This is now thought to hold recoverable reserves of more than 3bn barrels of oil equivalent. The Ranger find, which was drilled 60 miles (96km) north from the original Liza discovery and closer to the Venezuelan maritime border, opened an entirely new area to potential future production.
ExxonMobil and its partners are already pushing ahead with the first phase of development for the Liza find. A 120,000-barrel-a-day floating production storage and offloading (FPSO) vessel is in the works for the Stabroek block, which Hess has pointed out is the size of more than 1,000 Gulf-of-Mexico blocks. First oil is expected as soon as 2020.
The economics of that first phase of development look attractive. Hess has put the breakeven price at $35 a barrel and the total cost at $3.2bn to pump 450m barrels from the field, putting development costs at around $7/b. Other analysts estimate the breakeven at between $45/b and $50/b. But it's clear that the find is easily in the money at today's oil prices and is among the most enticing discoveries made anywhere in the world in recent years.
The consortium has benefited from a deep slump in the global offshore industry that has left offshore drillers with severe overcapacity, driving down costs. Although the day rate isn't available for the Stena Carron drillship being used, global utilisation of such deep-water drillships has fallen to around 60% and average day rates are less than $200,000, half the early-2015 level, according to data from IHS Markit. The fact that the country's oil deposits are in deep waters but sit relatively shallow under the surface has also translated into lower drilling costs. Hess says wells take about a third of the cost and time as in the deep-water Gulf of Mexico.
At a conference in Miami last November, John Hess, Hess's boss, argued that the Liza project was more attractive than drilling in the Delaware section of the Permian, the hottest shale acreage in the US. He argued the project would pay off quicker, require a fraction of the wells, and produce more crude at less cost-around $7/b development cost in Guyana compared to around $11/b in the Delaware. "While both are world-class investments, Guyana is our Permian and much more, offering lower cost of development and higher returns," said Hess.
More will come after the first phase of development at Liza. The companies are already actively looking at phase-two and three developments around the Liza discovery, where the Payara, Snoek and Liza Deep wells have pointed to far more production potential. The three FPSOs could easily push Guyana's oil production to more that 300,000 barrels a day by the mid-2020s. Additional discoveries at Ranger and Turbot, which sit around 30 miles south of Liza, point to additional production projects in the pipeline, potentially pushing output to 400,000 b/d or more later next decade.
The biggest risk to all this is that it's simply too much, too fast for Guyana, a tiny underdeveloped country of 0.77m people and a GDP that is one-hundredth of ExxonMobil's market capitalisation. Guyana has turned to the International Monetary Fund, Norway, the US and others to help it prepare for the flood of petrodollars coming its way; but corruption and the "resource curse" are big risks that could undercut Guyana's oil ambitions. Mozambique, Ghana and other relatively small countries that have struggled to cope with major oil and gas discoveries offer cautionary tales.
Guyana's bitterly divided politics will only complicate things as production, and revenues, approach. In December, the government was forced to publish its contract with ExxonMobil after growing controversy over a previously undisclosed signing bonus and accusations that the government had given the US supermajor a sweetheart deal. In reality, the terms of the deal were fairly typical for a high-risk frontier-oil destination, where good terms are needed to pull in investors. It isn't likely to be the last such stumble on Guyana's road to oil riches.
Source: Petroleum Economist