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Zainab Calcuttawala

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Zainab Calcuttawala is an American journalist based in Morocco. She completed her undergraduate coursework at the University of Texas at Austin (Hook’em) and reports on…

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Exxon’s Guyana Play Could Be As Price Competitive As The Permian

Guyana

Guyana got its fifth deepwater project of the year on Tuesday, when a consortium including Exxon Mobil, Hess Corp, and CNOOC green-lighted a $4.4 billion investment in the newly discovered Liza oilfield.

The final investment decision on phase I of the mega-project suggests that oil majors are still interested in notoriously pricey offshore projects, even as barrel prices reach their lowest point in 2017.

Low-cost shale projects in Texas’ Permian Basin attracted $7 billion in new investments just from Exxon earlier this year, but experts say the Guyanese project could be “just as attractive and competitive at the Permian.”

Phase 1 of the operation will make the Guyanese project, which should pump 120,000 barrels per day by 2020, feasible despite bearish markets, Exxon says. Just the lease for the required floating production storage and offloading (FPSO) facility will cost $1.2 billion.

"We're excited about the tremendous potential of the Liza field and accelerating first production through a phased development in this lower cost environment," Liam Mallon, head of development for Exxon, said in a statement. “We will work closely with the government, our co-venturers and the Guyanese people in developing this world-class resource that will have long-term and meaningful benefits for the country and its citizens."

The consortium based its decision on the discovery of over 197 feet of oil-bearing sandstone reserves at the Liza-4 well, which put total recoverable assets in the Stabroek block at 2-2.5 billion oil-equivalent barrels. The site, which will not be part of the first developmental phase, sits 190 kilometers from Guyanese shores, 1,500-1,900 meters underwater.

Related: Oil Markets Unmoved By Brewing Conflict In The Middle East

Analysts expect a 33 percent internal rate of return, a two-year payback term, and profit margins of $32 a barrel, according to figures from BMO Capital seen by Seeking Alpha.

Exxon also suggested Phase II potential for the field. The American oil major’s subsidiary, Esso Exploration, also operates the Canje and Kaieteur blocks.

Exxon first struck oil in Stabroek in 2015. In two separate instances this year, the same company found additional recoverable reserves within the licensed area. The block is a gift that keeps on giving for the consortium and Guayana.

Guyana’s government has managed to capitalize on interest in the Liza field quickly after its discovery. Even as federal prosecutors inspect a possibly fabricated plot to kill the president, Georgetown’s political stability seems secure as the Atlantic Ocean warms ahead of hurricane season.

The rainforest-clad country, which speaks English due to its British colonial roots, has fared far better politically than Venezuela. Protestors nationwide are tearing apart President Nicolas Maduro’s authority to rule, as low oil prices destroy the state oil firms’ bottom line. Guyana, on the other hand, is new to the crude oil game. The oil curse has not hit its budget in full force yet, but the speed at which production comes online will put Guyana on track to face similar corruption issues.

By Zainab Calcuttawala for Oilprice.com

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  • Septimo Aucoin on June 22 2017 said:
    Question is profitable for whom? the numbers like IRR etc. presented in the article don't refer to anything Guyana is doing. So that only means the profitability reference is not to Guyana
  • Erik Stein on June 21 2017 said:
    The offshore discoveries in Guyana are extremely exciting. However, I'm wondering how the Guyana discoveries can be “just as attractive and competitive at the Permian.” There's zero infrastructure offshore (no oil has been produced by Guyana) vs. the Permian which has one of the most efficient infrastructures in the world. Furthermore, Guyana is currently engaged in an serious offshore territorial dispute with Venezuela--supported by their controversial President--a Third World country on the verge of economic and political collapse. Therefore, there are military repercussions to consider in this dispute.

    We are accustomed--and eventually inured--to the rapid change that comes with sensationally advanced technologies, but socio-political evolution advances glacially and never in a straight line. We shouldn't underestimate the enormous tasks and possible scenarios that lie ahead. There's a sizable lag to overcome for the foreseeable future in order to make offshore Guyana competitive with the Permian basin any time soon.

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