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Suriname steps out of the shadows

Latin American nation becomes latest upstream hotspot on further exploration success

A second major oil discovery offshore Suriname has reinforced hopes that the country can emulate the upstream successes of neighbouring Guyana, even as economic gloom has descended across much of the global energy sector in recent weeks.

Total, together with its US independent partner Apache, announced on 2 April a significant find at their Sapakura prospect, not far from the Guyana maritime border. The discovery was the consortium’s second in block 58 following drilling in early January at the Maka prospect.

The results from both, while still preliminary, suggest extensive offshore reserves and could attract a wave of further exploration. “The presence of hydrocarbons in place in stacked targets on both wells certainly de-risks for other producers,” says Neal Dingmann, managing director at US bank SunTrust Robinson Humphrey. An investor note from Swiss bank Credit Suisse estimates reserves of c.1bn bl oe.

Follow suit

The proximity of the two finds to neighbouring Guyana, where ExxonMobil has made 16 major discoveries, raises confidence of further oil. The geology of the discoveries also indicate extension of the prolific Stabroek block into Suriname territorial waters.

Guyana’s upstream has proven to be one of the world’s most productive provinces in recent years. ExxonMobil has made production from the offshore Liza project there a core pillar of its upstream strategy. Industry-leading lifting costs and a low breakeven have allowed the US company to maintain its growth pace, even as harsh economic conditions cut spending more generally.

ExxonMobil revised down $10bn in capital investment for 2020. But ramp-up of Liza output is still projected going out to 2022, although a wait for Guyanese government approval to develop the Payara field may delay production by six to 12 months.

Giving precedence

The potential to replicate ExxonMobil’s model means Total and Apache continue to prioritise Suriname, even as short-term production guidance is slashed. “While oil prices always play a role in commercialisation, large successful projects such as this still are generally commercial at much lower prices, much like ExxonMobil’s Stabroek Block,” says Dingmann.

Offshore success is particularly important for Apache. Exploration in Suriname has largely been financed by Total, despite the 50/50 joint venture. Long-term production at a low cost, with little upfront exploration expense, would be a considerable boon to the company’s finances.

“The presence of hydrocarbons in place in stacked targets on both wells certainly de-risks for other producers” Dingmann, SunTrust Robinson Humphrey

Unlike many of its US independent peers that have an extensive Permian exposure, Apache has a more diversified international portfolio, with assets in Egypt, the Gulf of Mexico and the North Sea. The US firm’s international assets are crucial to the company’s future growth in the current low oil price environment. Last year, only 23.5pc of total production was pumped from the Permian basin, whereas Apache continues to produce over 335,000bl/d oe from Egypt—although it could be forced to trim this output if the Opec+ observer country implements production discipline.

To better cope with the financial downturn, Apache removed c.$1.2-1.4bn in investment spending this year, cut its dividend payout by 90pc and reduced its rig count in the Permian to zero. But the company also has strong liquidity and the option to tap $4bn in credit. Apache has, moreover, hedged a sizeable share of its portfolio to help weather the financial downturn, at least in the short term. Without increasing investment, though, production will likely decrease next year, making Suriname even more important for long-term growth potential.

Further exploration ahead

The joint partners will next drill a further two wells in block 58 this year, first the Kwaskwasi prospect and then the Keskesi prospect. Apache has identified over 50 potential drilling prospects in total across the block. And the US company has a 45pc stake in block 53, together with Spanish partner Cepsa (25pc) and Malaysian state firm Petronas (30pc). In 2017, exploration in the block failed to return oil after the Kolibrie wildcat came up dry.

c.1bn bl oe – Credit Suisse reserve estimate

Other companies have acreage in Suriname and have either started exploring or are scheduled to begin. US independent Kosmos Energy drilled last year in block 42 but abandoned the well when it came up dry. The company identified plans to drill another prospect in the block, but that was before the price downturn.

UK-headquartered Cairn Energy is interpreting 2D seismic data collected at block 61 and will conduct 3D testing before a possible drilling campaign. Fellow UK independent Tullow Oil planned to spud a well at the Goliathberg-Voltzberg North prospect in block 47 in the fourth quarter this year. But bottomed out oil prices might also force a re-think there, as the company scrambles to stabilise its financial footing.

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