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Matthew Smith

Matthew Smith

Matthew Smith is Oilprice.com's Latin-America correspondent. Matthew is a veteran investor and investment management professional. He obtained a Master of Law degree and is currently located…

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Guyana’s Oil Boom Will Only Accelerate In 2023

  • Guyana, believed by many to be the last great frontier of the offshore oil boom, is set for another big year in 2023.
  • The country’s Liza oilfield is already producing 360,000 barrels per day, and Exxon has already found 11 billion barrels in the Stabroek Block.
  • Guyana’s low break even prices, the quality of its oil, and the very favorable production-sharing agreement Exxon secured means development will be rapid.

Guyana’s offshore oil boom continues to gain momentum. It is the ExxonMobil-led consortium operating the 6.6-million-acre Stabroek Block offshore Guyana which stands to benefit the most from what analysts describe as the last great frontier offshore oil boom. The global energy supermajor has made over 32 world-class discoveries in the Stabroek Block and is now pumping 360,000 barrels per day from the consortium’s operations in the Liza oilfield. This is a spectacular development considering that Exxon only made the first discovery in the Stabroek Block in May 2015. The two latest discoveries were announced in October 2022 further underscoring the tremendous oil potential held by the Stabroek Block and offshore Guyana. While other drillers, like CGX Energy have found oil in Guyana’s waters, it is Exxon that is best positioned to fully benefit from the former British colony’s tremendous hydrocarbon potential.

Since 2015, 11% of the crude oil discovered globally has been found in Guyana, with the vast majority occurring in the Stabroek Block where Exxon has estimated that it has found more than 11 billion barrels of oil resources. That number will keep growing as the global energy supermajor makes further discoveries in the prolific Stabroek Block. The tremendous success experienced by Exxon in Guyana is unmatched and saw the integrated energy company prioritize Guyana in its 2020 capital plan. The global energy supermajor’s CEO Darren Woods reiterated in February 2022 that offshore Guyana will form a key part of Exxon’s production growth with the current discoveries. Liam Mallon President of ExxonMobil Upstream stated that the supermajor is focused on acting as an essential partner for the government of Guyana to develop the country’s vast offshore hydrocarbon resources.

Exxon plans to invest $20 billion to $25 billion annually between now and 2027 with 70% of that spending to be allocated to upstream operations with the Permian, Brazil, Guyana, and LNG being the top priorities. Such a significant exploration plan will deliver dividends when the considerable petroleum potential of the Guyana-Suriname Basin is considered. Exxon’s swathe of world-class oil discoveries in the Stabroek Block indicates that the U.S. Geological Survey grossly underestimated the basin’s petroleum potential. In a May 2001 report, the USGS calculated that the Guyana-Suriname Basin held mean undiscovered oil resources of 15 billion barrels which is only four billion barrels more than the 11 billion barrels found by Exxon since 2015. This along with the fact that many parts of the Guyana-Suriname Basin are under-explored indicates there is considerable potential for further world-class oil discoveries.

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Exxon while focused on the prolific Stabroek Block has also acquired a 35% interest in the Canje and Kaieteur Blocks in offshore Guyana, where it is the operator. The supermajor plans to drill more than 60 wells in offshore Guyana over a six-year period as it seeks to exploit what is fast becoming a key driver of production growth. This includes a 35-well drilling campaign in the Stabroek Block starting during the third quarter 2023, when the current 25 wells being targeted are completed, with the plan expected to conclude by the end of 2028. Exxon also plans to drill 12 wells on the Canje Block and another 12 on the Kaieteur Block over the same period. Both blocks are believed to possess considerable petroleum potential despite recent non-commercial discoveries and dry holes. It has been estimated that Canje contains up to 10 billion barrels of undiscovered oil resources while Kaieteur could hold anywhere up to 2 billion barrels. 

Exxon has a range of projects underway in offshore Guyana. The energy supermajor plans to expedite the development of those operations, as occurred with the Liza phase one and two developments that are now operating above nameplate capacity to be pumping 360,000 barrels of oil per day. The $9 billion Payara project, which will consist of 40 wells split between 20 production and 21 injection wells giving it a capacity of 220,000 barrels per day, is currently under development with first oil expected during 2023. There is also the $10 billion Yellowtail development which received a final investment decision (FID) from Exxon in April 2022. This will consist of 26 production and 25 injection wells which will add capacity of 250,000 barrels per day making it the largest project undertaken by Exxon to date in the Stabroek Block. Exxon envisions that those operations when they come online will boost production from offshore Guyana to over 850,000 barrels per day by 2027.

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Guyana’s industry-low breakeven prices make it a highly profitable jurisdiction for Exxon which was able to secure a very favorable production-sharing agreement with the national government in Georgetown. Liza Phase 1, which produced first oil on 20 December 2019 less than five years after the first exploration well was drilled, one of the fastest ramp-up periods witnessed, breaks even at $35 per barrel Brent. That fell to $25 per barrel Brent for Liza Phase 2 which pumped first oil in February 2022. The Payara project which will come online during 2023 is forecast to have a breakeven price of $32 per barrel Brent, while the Yellowtail development is expected to break even at $29 per barrel Brent. Those numbers highlight just how profitable oil production in the Stabroek Block is for Exxon while underscoring the crucial role operations in Guyana will play in reducing the company-wide breakeven from $41 per barrel in 2021 to $35 a barrel by 2027. As drilling techniques improve and additional infrastructure is developed in offshore Guyana those breakeven prices will likely fall lower.

Another compelling reason for Exxon to prioritize developing its assets in offshore Guyana is the high-quality oil being discovered in the Stabroek Block and pumped from the Liza oilfield. Liza grade crude oil is light and sweet, with an API gravity of 32 degrees and 0.58% sulfur, meaning it is cheaper and easier to refine into high-grade fuels. The oil being produced has a low greenhouse gas intensity to extract, especially in comparison to heavier sourer varieties being produced in other South American countries, like Venezuela and Colombia. According to the Carnegie Endowment for International Peace, generally lighter sweeter grades emit a  lower volume of greenhouse gases when produced and refined. As the world pushes to decarbonize the global economy there is growing pressure on energy companies to cut the volume of greenhouse gases emitted when extracting and refining crude oil. Exxon, as part of its 2023 to 2027 Corporate Plan, intends to reduce the carbon intensity of upstream operations by 40% to 50%, with growing production in Guyana slated to play a key role with those operations to have a greenhouse gas intensity that is 30% less than the upstream average by 2027.

It is not difficult to see why Exxon has prioritized its assets in Guyana for further development. Not only was Exxon able to secure a very favorable production sharing agreement with Georgetown which contributed to industry-low breakeven prices, but production will keep expanding at a rapid clip making Guyana an important profit center. After a substantial outcry, such an extremely beneficial production-sharing agreement will likely never be secured by any other energy company in Guyana. The low carbon intensity of the petroleum produced in Guyana amplifies the importance of those operations in a world seeking to sharply reduce greenhouse emissions in the fight against climate change. For those reasons, Exxon is poised to benefit significantly from its investment in offshore Guyana and unlock considerable value for shareholders.

By Matthew Smith for Oilprice.com

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