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Crude futures saw some headwinds…

Dave Forest

Dave Forest

Dave is Managing Geologist of the Pierce Points Daily E-Letter.

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Exxon’s Mega Discovery Could Be A Boon For Offshore Investment

Potentially game-changing announcement in the oil and gas sector late last week. From a part of the world that’s almost completely unknown for petroleum — but could soon become a major exploration destination.

That’s the South American nation of Guyana. Where majors ExxonMobil, Hess Corp. and China’s CNOOC appear to have made one of the biggest oil discoveries of recent memory.

Exxon said Thursday that the Liza-2 well in the Guyana offshore encountered 190 feet (58 meters) of oil-bearing sandstone. Marking the second successful well drilled on this prospect area, following the completion of the Liza-1 well last year.

At the time of the Liza-1 drilling, Exxon had estimated that this discovery could hold up to 700 million barrels of oil equivalent.

But this most recent drilling has changed those figures, in a major way.

With Liza-2 coming in successful, Exxon and partners now estimate that the Guyana prospect could host as much as 1.4 billion barrels of oil equivalent. Making this one of the biggest new finds anywhere in the world the last several years.

A discovery of this size is important in its own right for the industry. And also interesting because it sets up knock-on potential in neighboring nations like Suriname and French Guyana.

But in a more global sense, the Liza discovery is critical because it pushes a new paradigm in the oil and gas sector — a move back toward offshore exploration.

With the shale boom of the last five years, offshore drilling took somewhat of a backseat to onshore drilling and fracking work. But with the recent collapse of the oil price, that shift has reversed — with majors like Shell recently saying they see offshore development as a critical area of focus going forward. Related: Big Oil Could Spark A Renaissance In U.S. Shale

That makes sense given the big size of offshore targets — and the economies of scale that can be achieved for a single project. Unlike the shale patch, where capital must be constantly and steadily applied across a wide area to make the numbers work.

Exxon’s big success in Guyana should cement that lesson for managers in today’s environment. Watch for more capital being allocated to offshore drilling, perhaps creating opportunities for the right projects and development companies in this space.

Here’s to a return to the deeps

By Dave Forest

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