Global oil supermajor ExxonMobil is investing heavily in South America seeing it become the driving force behind Guyana’s offshore oil boom. The integrated energy company is reporting stunning successes in the offshore 6.6-million-acre Stabroek block where it is the operator and holds a 45% interest with partners Hess and CNOOC owning 30% and 25% respectively. Since 2015, Exxon has made a notable 20 oil discoveries in the Stabroek block, the latest being the June 2021 Longtail-3 discovery, giving the energy supermajor estimated recoverable resources of around nine billion barrels of crude oil. Those high-quality discoveries are comprised of light sweet crude oil which is experiencing strong demand growth because of ever-stricter sulfur emission regulations causing the popularity of heavier sour crude oil grades to decline. When combined with low breakeven prices of $35 per barrel for Liza Phase 1 and $25 a barrel for Liza Phase 2, which comes online during 2022, it is clear why Exxon chose to prioritize investment in offshore Guyana and embark on an extensive 2021 drilling campaign. Aside from the 15 wells planned for the Stabroek block, in January 2021 Exxon launched a three-well drilling program for the adjacent Canje block, which is to the northeast of the Stabroek block. The integrated oil supermajor is the operator of the block and holds a 35% interest, with partners Total Energies, JHI Associates, and Mid-Atlantic Oil and Gas controlling 35%, 17.5%, and 12.5% respectively. Despite expectations that the Canje block possesses considerable hydrocarbon potential on a similar scale to the Stabroek block Exxon’s drilling campaign has yet to experience any success. In January 2021 the oil supermajor spudded its first exploration well, Bulletwood-1, in the Canje block which failed to find any commercially exploitable quantities of hydrocarbons. The second exploration well, Jabillo-1, was then spudded with partner JHI Associates announcing in early July 2021 that no commercial quantities of hydrocarbons were identified. Those poor results have not deterred Exxon from pressing ahead with its drilling campaign with the company moving on to drill the Sapote-1 well, which will be spudded over 100 kilometers to the southeast of Jabillo-1. This is it is believed will place Sapote-1 closer to the hydrocarbon fairway where most of the Stabroek block discoveries were made and contains Apache and Total Energies four discoveries in offshore Suriname Block 58. This will bolster the likelihood of Exxon making commercially exploitable hydrocarbon finds in offshore Guyana, after a year where drilling activity failed to yield any notable successes. The poor results include the Tanager-1 well, the first drilled by Exxon in the Kaieteur block offshore Guyana, located to the north of the Stabroek block, which came up dry in November 2020. In January 2021 Exxon failed to find commercially exploitable quantities of hydrocarbons with its Hassa-1 well drilled in the Stabroek block, although it has since made two significant discoveries with the Uaru-2 and Longtail-3 wells. Even if Exxon continues to drill dry holes in the Kaieteur and Canje blocks these will be more than compensated for by the company’s stunning successes in the Stabroek block.
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Toward the end of a very difficult 2020, Exxon announced it was focusing on those assets with the highest future potential value, offshore Guyana, Brazil’s pre-salt offshore oil basins, and the Permian. It is easy to see why Exxon shifted its focus to those assets and is investing considerable capital in offshore Guyana. The oil supermajor was able to secure a sweetheart deal from Guyana’s government for the Stabroek block. The Production Sharing Agreement sees the consortium, comprised of Exxon, Hess, and CNOOC, splitting oil profits 50-50 with Georgetown. In conjunction with a very low 2% royalty payable on gross oil revenues, which is among the lowest globally, Guyana’s government is liable to reimburse the consortium for all development, abandonment, and operating expenses. Such a highly beneficial contract significantly reduces the risks associated with developing the Stabroek block and will boost Exxon’s profitability, especially after the low break-even prices are considered. Exxon expects after the Liza Phase 2 and Payara assets come online in 2022 and 2024 respectively, to be pumping more than 750,000 barrels daily from the Stabroek block by 2026. This will add a considerable quantity of highly profitable light sweet crude oil, with an API gravity of 32 degrees and 0.58% sulfur content, to Exxon’s liquids production, which averaged 2.26 million barrels daily for the first quarter of 2021. If Exxon can capitalize on its substantial success in the Stabroek block and make other substantial crude oil discoveries in offshore Guyana, then the supermajor’s low-cost liquids production and ultimately profitability will keep growing.
By Matthew Smith for Oilprice.com
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