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Guyana—at the frontier

ExxonMobil and its partner are racing ahead with their major Liza discovery in Guyana, at Latin America's exploration frontier. Others are struggling to replicate the success

The split between winners and losers in the frontier exploration campaign off Latin America's northeast coast—focused around Guyana, Suriname and French Guiana—is becoming clearer.

Indisputably on the winning side is ExxonMobil and its junior partners, Hess and China's Cnooc, in Guyana. The consortium sanctioned the first phase of development of the huge Liza discovery in June. It followed that in October with its fifth major discovery on the Stabroek Block at the Turbot-1 well, which the drillers say has opened up an entirely separate play in the area. "The Stabroek block contains a massive world-class resource that keeps getting bigger and better," John Hess, the head of his namesake company, told analysts in October. ExxonMobil's executives indicated that the Turbot field would put the total recoverable resources discovered so far at Stabroek at nearly 2.8bn barrels—one of the world's largest finds over the past decade.

The companies aren't wasting time moving forward. They plan to spend around $4.4bn on drilling and subsea infrastructure, and are hiring a 120,000-barrel-a-day floating production, storage and offloading (FPSO) vessel. This will handle 450m barrels from the Liza field in the first phase. They plan to start pumping oil off Guyana's coast by 2020, less than five years after the field's discovery.

The subsequent discoveries make further development all but a certainty. "I would say, given the significant exploration success to date, that we are considering at least two more phases, Phase 2 and Phase 3, for Guyana," Jeff Woodbury, a senior executive at ExxonMobil, told analysts in October, likening it to the company's developments off Angola.

$4.4bn - Cost of bringing Guyana's Liza discovery into production

Oil at $50 per barrel isn't going to derail the project, and in fact may be something of a blessing in disguise. The steep downturn in the global offshore industry brought on by the price downturn means costs for services and materials are low. On top of that, Hess points out that although the drilling is taking place in deep water, the fields lie relatively shallow under the subsurface, making wells relatively cheap to drill. Hess said the Guyana wells could be drilled in a third of the time and at a third of the cost as deepwater wells in the Gulf of Mexico, where the company also operates. Hess pegs the finding and development costs for the Liza field at around $7/b cheaper than its Bakken figure. "The cash-on-cash returns in Guyana are much superior to anything you can get in shale," Hess said.

The companies say they see billions more barrels of potential in the Stabroek Block, and more exploration drilling is on tap. The consortium is drilling the Ranger prospect, another potentially new play in the Stabroek Block, and hopes for results before the end of this year. It then plans to go back to the Turbot find next year to better gauge the size of the find.

From there, it will be a race to first oil, and beyond. The second and third phases are likely to be rolled out at two-year intervals—ExxonMobil pointed to the phased development of its major deep-water Angola projects as a model. Tiny Guyana could be producing 400,000 barrels a day or more by the middle of the next decade, utterly transformational for the country of 750,000 people.

While Guyana and the ExxonMobil-led consortium are basking in the glory of a successful frontier exploration campaign in the region, others are feeling the sting of disappointment. Tullow Oil, which earned its reputation for finding new oil provinces in Ghana, struck out at its Araku-1 well in neighbouring Suriname in October. It was the latest set-back for Tullow in the frontier northeast Latin American waters after its initially promising Zaedyus find off French Guiana failed to pan out. Still, Tullow has vowed to press on in the Guyana Basin, hoping it can replicate its West Africa success across the Atlantic. The company will drill next year at the Kanuku Block, which sits adjacent to Stabroek.

Source: Petroleum Economist
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