Offshore Guyana is garnering considerable attention from international oil companies as a slew of oil discoveries since 2015 underscore the significant oil potential of the former British colony’s territorial waters. Since 2015, global energy supermajor ExxonMobil has made a slew of high-quality petroleum discoveries in the Stabroek Block offshore Guyana which the company estimates contain over 11 billion barrels of recoverable oil resources. In a remarkable turn of events, for a country which had no commercial hydrocarbon sector, those discoveries have catapulted Guyana into the league of Latin America and the Caribbean’s leading petroleum producing nations. Growing exploration and development activity means Guyana is on-track to be pumping over one million barrels daily in less than five years and become a leading offshore oil producer as well as exporter.
At the core of Guyana’s epic oil boom is the 6.6-million-acre Stabroek Block. It is here that Exxon, which is the operator holding a 45% interest and its partners, Hess with 30% share and CNOOC holding the remaining 25%, has made over 30 high quality discoveries. Toward the end of January 2023, the supermajor’s partner Hess announced yet another major oil discovery in the Stabroek Block. This occurred at the Fangtooth SE-1 well located eight miles southeast of the January 2022 Fangtooth-1 discovery. Hess stated the well found 200 feet of oil-bearing sandstone reservoirs. The discovery will not only bolster estimated recoverable oil resources, which are already over 11 billion barrels but has the potential to underpin another field development. After that discovery it was announced that Exxon was preparing to spud the Kokwari-1 exploration well to the northwest of the Liza field.
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During February 2021, Exxon announced it had prioritized the rapid development of high return deepwater assets in offshore Guyana where it is currently constructing two petroleum projects in the Stabroek Block. First there is the 220,000 barrel per day Payara development which is forecast to start-up during 2023 and will eventually contain 20 production and 21 injection wells. The second is the Yellowtail project which is targeting the Yellowtail and Redtail oil discoveries with 26 production and 25 injection wells. It is anticipated that Yellowtail will have installed capacity of 250,000 barrels per day with startup anticipated before the end of 2025. Those two projects, on completion, will add 470,000 barrels per day to the 360,000 barrels currently being pumped from the Liza oilfield in the Stabroek Block, lifting the Exxon-led consortium’s total production to 830,000 barrels per day by 2025.
Exxon is waiting on government approval for a fifth development the Uaru Project. The supermajor expects to make a final investment decision, known as a FID, for that operation by the end of the first quarter 2023. The Uaru project is targeting an estimated 1.3 billion barrels of crude oil and is expected to commence operations sometime during 2026 if all necessary approvals are received as anticipated. The asset will have nameplate capacity of 275,000 barrels per day making it the largest project in the Stabroek Block to date. On commencing operations Uaru will lift Guyana’s oil production to over 1.1 million barrels per day by 2027. According to industry consultancy Rystad Energy, the former British colony will be pumping 1.7 million barrels daily 2035 making it the world’s fourth largest offshore oil producer.
There are signs Guyana’s oil output could exceed predicted volumes in less than a decade because Exxon is accelerating development of the Stabroek Block due to its tremendous earning potential. That immense profitability is underscored by Exxon announcing it has recouped the $3.7 billion invested to develop Liza Phase One. This is especially noteworthy because of the relatively short time between first discovery, which occurred during May 2015, the December 2019 field startup and full production capacity being achieved during the second quarter 2022. Exxon has planned an extensive exploration program in the Stabroek Block with a 25 well campaign currently underway which is expected to conclude during early 2023 with a 35 well venture slated to begin during the second quarter. Exxon also plans to drill 12 wells across the Kaieteur and Canje Blocks in offshore Guyana which are adjacent to the Stabroek Block. There is every indication more discoveries will be made further bolstering Guyana’s recoverable oil resources.
A headwind that could derail Exxon’s plans for the Stabroek Block is the immense discord associated with the extremely favorable production sharing agreement secured with Georgetown. The Exxon-led consortium negotiated a sweetheart deal which includes an extremely low royalty of 2%, compared to the industry average of 12.5%, on all petroleum produced and sold. There is also the ability to recover development costs from the first 75% of oil produced each month. It is argued that this is highly disadvantageous for Guyana causing the impoverished country to lose up to $55 billion in revenue. While President Irfaan Ali is committed to preserving the contract opposition groups are pressing for a revised PSA using the new royalty and tax regime developed for the agreements to be issued under the December 2022 bid round. Under those contracts it is proposed that a 10% royalty will be applied and the ceiling for cost recovery oil will be reduced to 65%. There are also plans to levy a 10% corporate tax when such an excise did not previously exist.
By Matthew Smith for Oilprice.com
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