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ExxonMobil drilling heralds oil era in Guyana

Keen to add to its production base, ExxonMobil hopes to have the oil flowing from offshore Guyana within two years

It's not yet certain whether the tiny Caribbean state of Guyana is in good shape to handle the revolutionary economic and social impact of a multi-billion-dollar oil industry, but we are about to find out.

ExxonMobil has announced that drilling started in May on the first development well for the Liza Phase 1 offshore project—the first of 17 production wells planned for this phase. That programme is expected to result in the start of production in 2020 via a floating production, storage and offloading vessel (FPSO) called Liza Destiny. The FPSO, now being converted from an oil tanker, is expected to have a capacity of 120,000 barrels a day (b/d) of oil.

Another FPSO with a capacity of 220,000 b/d is also being planned to operate on Phase 2 of the Liza development, with a third FPSO being considered for deployment on the nearby Payara development later on. If all that happens, the three developments could be producing 500,000 b/d in just a few years' time—representing quite a gear shift for a country of around 800,000 people with a GDP that totals around 1% of Exxon's market capitalisation.

The Starbroek Block, whose 26,800 square kilometre area houses these developments, has yielded six large discoveries. A major find in January at the Ranger-1 well the sixth significant discovery in the vast block. Ranger-1 Is located 96km north from the original Liza discovery.

On 20 June, Hess announced another oil discovery at the Longtail-1 exploration well, creating the potential for additional resource development in the southeast area of the Stabroek Block. The Longtail-1 well is located approximately 8 km west of the Turbot-1 well.

These finds have boosted discovered estimated recoverable resources to more than 3.2bn barrels of oil equivalent, according to Exxon. The Houston-based supermajor holds a 45% stake in the block and is operator, Hess holds 30% and China National Offshore Oil Corporation's Nexen has a 25% stake.

Contract controversy

The Liza project has attracted criticism within Guyana which sounds all too familiar to oil companies working on frontier acreage across the developing world, centring on concerns that the agreement underpinning the project had favoured the consortium over the host country. Political pressure prompted the government to release details of the contract in December, but controversy continues to swirl around the development.

The flames were fanned by a report prepared by the International Monetary Fund for Guyanese officials earlier this year, which described the terms of the production sharing agreement as "favourable" to the consortium, compared to global industry norms. Exxon countered by saying it believed the deal was standard for frontier developments, where investors need substantial incentives to risk their money. Exxon has also said it sees no need to renegotiate a contract signed only two years ago, which, it said, already included concessions to the government.

Given the controversy, drillers are, unsurprisingly, treading carefully and keen to accentuate the positive. On announcing the drilling start-up, Liam Mallon, president of ExxonMobil Development Company, was eager to stress that Liza Phase 1 was expected to generate over $7bn in royalty and profit oil revenues for Guyana over the life of the project. "The Liza development and future projects will provide significant economic benefits to Guyana," he said.

He stressed the important role of Guyanese businesses, contractors and employees in the company's efforts to get to first oil in only five years since the first discovery. Mallon said around half of ExxonMobil's employees, contractors and subcontractors were Guyanese and that the firm had spent about $24m with over 300 local suppliers in 2017.

The stakes are high for both ExxonMobil, which needs to add to its global production, and the government of low-income Guyana, so there will be no shortage of determination on both sides to ensure that this next stage of the development progresses smoothly.

Source: Petroleum Economist


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