With the start of oil production here slated for March, 2020, ExxonMobil says that a market price of even US$40 per barrel would still yield significant returns given that the cost is “very low.”
“When you think about some of the deepwater areas that we’re in, Guyana is a great example. While we’ve had that acreage for a while, some of our technology that we’ve applied to sub-surface imaging has really positioned us well to see things that others historically had not seen there. And you’ve seen the result. We’ve got six very substantial discoveries there and the economics are very robust. At a $40 flat rail, we’re talking about double digit returns. The cost of supply for Guyana is very low. And I think we are – as with our partners are very well positioned to capitalize on it and we’re leveraging our global deepwater capabilities in doing so,” Jeff Woodbury, Vice President of Investor Relations and Secretary at Exxon Mobil Corporation, told analysts during a February 2nd conference call on the company’s Fourth Quarter earnings for 2017.
He was at the time responding to a question about the company’s investment in deepwater exploration against the cost.
“We’re picking up additional exploration potential. Think about it this way. In terms of how we focus our exploration pursuits, it’s primarily in two key areas. One is where we can get into new play opening opportunities that we see a very high quality potential resource that would compete with global investment opportunities that we believe has a very – assuming we achieve the objectives of the exploration program, we’ll have a clear path to profitability relative to our other investment opportunities in the portfolio. The second area is where we have existing infrastructure and we see significant high quality potential that we can bring on and start generating revenue pretty quick,” Woodbury said before expanding on the Guyana exploration.
Earlier in the call, Woodbury noted the continued success offshore Guyana, where the company and its partners have made six discoveries in the Stabroek block.
In announcing the most recent discovery at its Ranger-1 well in January,
Exxon said it found over 230-feet of oil-bearing carbonate reservoirs and Woodbury noted that the company is encouraged by the results and has further work ahead to determine the full commercial potential of the resource. “We’ll likely drill a delineation well later this year,” he said.
450,000 barrels of oil per day
Excluding the Ranger discovery, Exxon has said that it has discovered more than 3.2 billion oil equivalent barrels of recoverable resource on the Stabroek block.
Woodbury also explained that the phase development of the Liza discovery is progressing with Phase 1 on track for first oil in March of 2020. He noted that development drilling is planned for commencement this year. “A second drilling rig is [en] route to Guyana and we envision a two-rig drilling program through the end of the year,” he added.
He also noted that an application for environmental permit to develop the second phase of Liza, with start-up expected by mid-2022, has been submitted, while the development of the Payara is expected to follow. “Payara is now planned as the third development offshore Guyana, mostly following Liza Phase 2. Payara has the potential to raise Guyana’s production to about 450,000 barrels of oil per day in total,” Woodbury said.
Sources have told Stabroek News that the current APNU+AFC has “much riding on oil production in 2020” and it is one of the reasons that the Production Sharing Agreement (PSA) with ExxonMobil and its partners was renegotiated sooner than its 2018 expiration date.
“Many persons are criticizing the PSA and the terms therein without realizing that both sides wanted something from an earlier production licence being issued. Government seems to have made it known that it wanted things fast tracked to get production by at least 2020 and there is where the negotiating power fell through a bit,” one source explained.
“Exxon was saying it wanted the licence and getting that would mean renegotiating earlier than planned but I think some persons were afraid also that they say they could wait until 2018 if there were more demands on them. But that would have put their production licence on hold and we don’t know when production would have started. You see you have to understand, as the case may be, that there is much riding on oil production in 2020, so it is kind of a locked in gamble. Exxon don’t have an election in 2020, Guyana does,” the source added.
General and regional elections are expected to be held in 2020, although it is unclear what month they will be held.
There have been arguments put forward by observers and even government advisor on petroleum Jan Mangal that auctioning of the country’s remaining blocks might yield more revenues that can immediately be used by a cash strapped nation like Guyana rather than through a PSA, where profits would be split 50-50 after cost recovery.
However, other experts have said that bilateral negotiations might be better suited to a developing nation like Guyana since it gives room to choose which company operates here as opposed to picking the highest bidder from a potentially unfriendly nation.