June 2017

Offshore in Depth

Recent major discoveries in the Atlantic, off Guyana’s coast, promise an oil revenue boom as early as 2020.
Ron Bitto / Contributing Editor

Recent major discoveries in the Atlantic, off Guyana’s coast, promise an oil revenue boom as early as 2020. This will give the government and civil society a tight schedule to prepare for the opportunities and problems that will result from becoming a major petroleum producer.

Underdeveloped economy. Settled by the Dutch West India Company in 1620 to establish sugar plantations, Guyana became a British colony in 1834, and gained its independence in 1966. Today, with a GDP of just $3 billion, Guyana is the third-poorest nation in South America. One-third of the country’s roughly 750,000 people live below the poverty line. Only 10% of Guyana’s roads are paved. The country has no oil and gas production, so significant offshore finds are, for the most part, welcome news.

Guyana-Suriname basin resource assessment. The oil and gas industry’s interest in the Guyana-Suriname offshore basin was piqued by a 2000 USGS assessment of South American undiscovered resource potential. Updated in 2012, the report identified the basin as the second-largest prospect on or near the continent. The assessment’s mean values for the basin were 13.6 Bbbl of oil, 21.2 Tcf of natural gas, and 574 MMbbl of NGLs. In 2012, CGX and Repsol drilled wildcats that encountered high pressures, but both were plugged without commercial finds.

Drilling by Exxon Mobil (45%), along with partners Hess (30%) and CNOOC’s Nexen (25%), has confirmed the promise of the USGS assessment. Three discoveries in the 6.6-million-acre Staebroek Block have made Guyana one of the world’s three most promising deepwater plays, according to Wood MacKenzie.

Three major discoveries. In May 2015, the Liza-1 exploration well, drilling in 5,719 ft of water, encountered 295 ft of high-quality oil-bearing sandstone, upon reaching 17,825 ft, TD. The Liza-2 appraisal well, drilled later in 2015, confirmed that the field contains potential recoverable resources of 800 MMboe to 1.4 Bboe.

In December 2016, the second discovery, the Payara-1 well, drilled 10 mi to the northwest of the Liza well in 6,600 ft of water, encountered 95 ft of oil-bearing sandstone after reaching a TD of 10,080 ft. Two sidetracks were drilled to evaluate the reservoir. Exxon Mobil is still analyzing geologic data, but the company said the well reached a separate reservoir from Liza.

The third discovery was made 5 mi southeast of the Liza-1 well and was announced in March 2017. The Snoek exploration well was drilled in 5,178 ft of water to a 16,978-ft TD and found 82 ft of high-quality sandstone. Exxon Mobil describes the three discoveries as separate reservoirs that are “just part of the significant exploration province offshore Guyana.”

Together, the three fields could hold 2 Bbbl or more, and with fast-track development could produce 500,000 bopd to multiple, leased FPSOs, with first oil as early as 2020. According to the New York Times, Hess has committed $475 million for development, and ExxonMobil’s investment should be over $500 million. The Guyanan government has granted favorable terms to operators, allowing them to recover most development costs before splitting profits 50/50.

Major infrastructure needed. Guyana will need major infrastructure investment to support offshore activity. The government has proposed a $500-million investment for a processing facility and oil services base on Crab Island, at the mouth of the Berbice River, and is evaluating development of a deepwater port there. Another proposal calls for building a power plant on the coast and a pipeline to carry natural gas from Liza field to fuel it. New oil and gas development has the potential to create many well-paid jobs, but technical training programs will have to be put in place to provide locals the skills needed to develop and maintain new oil and gas facilities.

Border dispute. Guyana’s oil development plans have been challenged by its neighbor, Venezuela, which claims 40% of Guyana’s territory in a border dispute that dates back to at least 1889. Several tribunals have since settled the argument in Guyana’s favor. However, Venezuela, with its financial turmoil and Guyana’s oil discoveries, has renewed its claims, which extend into the Atlantic. The Financial Times wrote that “the issue is as sensitive to the Venezuelan public as the Falkland Islands/Malvinas are for Argentina.” The UN has appointed Dag Halvor Nylander, the Norwegian diplomat who brokered peace in Colombia, to help resolve the current dispute.

No turning back. Aside from Exxon Mobil, several operators are evaluating their prospects in Guyana. DrillingInfo reported that in 2013, Repsol (with partner Tullow) completed seismic surveys totaling 4,060 km2 in its Kanuku Block and plans an additional 4,000 km2 of 3D seismic there. Eco Atlantic plans a seismic survey in the Orinduik Block. Meanwhile, Tullow and Kosmos Energy are drilling in neighboring Suriname.

Avoiding the “resource curse.” The Guyanan Minister of Natural Resources, Raphael Trotman, said in a television interview that his country could be susceptible to the “resource curse” brought on by sudden oil wealth and potential corruption. Like many underdeveloped countries, Guyana has no experience and few resources to handle taxation, regulation, and environmental control related to energy production.

Guyana has sought advice from the International Monetary Fund and the U.S. State Department to draft legislation for a fiscal regime for oil revenues, environmental regulations, and government oversight. The country also has engaged the Mexican Petroleum Institute to train welders, drillers, and other oilfield workers. Minister Trotman has emphasized Guyana’s plan to establish a sovereign wealth fund, like Norway’s, to devote oil revenues to “transformational national projects that will benefit generations to come.” wo-box_blue.gif

About the Authors
Ron Bitto
Contributing Editor
Ron Bitto has more than 30 years of experience as a technology marketer and writer in the upstream oil and gas industry. RON.BITTO@GMAIL.COM
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