World's Largest Recent Offshore Discovery Progresses Amid Political Tensions, Disputess
Nothing
is ever easy or simple in the world of international offshore oil and gas
development. That axiom is proving to be true for the most prolific offshore
oil discovery in recent years off the coast of the tiny South American nation
of Guyana.
Political
and media focus is shifting back to Guyana’s nascent oil industry following the
conclusion of a lengthy legal battle over a successful motion of no-confidence
in the governing coalition of President David Granger last December. On June
18th, the Caribbean Court of Justice (CCJ) upheld the no-confidence motion and
ordered elections by September 18th, 2019. Guyana has a history of volatile
politics, so this campaign season promises to become very contentious.
All
of this takes place against the backdrop of rapidly approaching first oil in
Guyana’s prolific Stabroek block, operated by the consortium of ExxonMobil XOM
+0%, Hess HES +0% and CNOOC . In April of this year, ExxonMobil made its 13th
discovery in the deep waters off the Guyanese coast. That discovery added to
the estimated 5.5 billion barrels of recoverable resources found so far on the
Stabroek Block alone.
The production potential here is staggering. ExxonMobil and its partners expect production can surge from zero to more than 750,000 barrels per day over the next 5 years. The first FPSO vessel recently set sail for Guyanese waters, and some expect to see as many as four or five offshore by the mid-2020s. Some analysts have calculated that the Government of Guyana could reap as much as $5 billion per year. These projections present transformative potential for a country with a population of around 800,000 and current GDP of less than $4 billion.
The
upcoming elections will play out in late 2019 and early 2020, roughly the same
time during which first oil production will take place. But it remains to be
seen what this confluence of elections and production may mean for the
industry. Vocal critics have already begun to advocate for the government to
take another look at the Stabroek production sharing agreement (PSA), which was
signed in 2016.
A
streak of successful discoveries has cast that contract in a different light,
yet the situation in 2015 was not nearly as rosy as things sit today. At the
time Guyana had no history of oil production and there had been a long string
of over 40 unsuccessful exploration wells. There was little infrastructure in place
to support any sort of production. Guyana also had the dubious distinction of
being a total write off for Royal Dutch Shell, which sold its offshore oil
exploration block that year for $1. So, ExxonMobil and its partner companies
were assuming an enormous risk going into this potential development.
The
long-running maritime border disputes with neighbors Venezuela and Suriname
only served to enhance that risk. In 2000, a Surinamese gunboat threatened to
fire on a CGX rig as it attempted to prepare an exploration well. In 2013, an
exploration vessel chartered by Anadarko Petroleum APC +0% was conducting
seismic work off the Guyanese coast when it was approached by a Venezuelan navy
vessel and forced to sail to Margarita Island where it was detained. Even
today, Guyana is battling Venezuela in international court to protect its
territory.
The
government, eager to retain interest amidst these difficulties, fell back on
generous fiscal terms and large blocks in 2016 to convince ExxonMobil and
others to continue their activities. Guyana thus became the epicenter of one of
the largest offshore exploration programs in industry history. Energy analyst
group Rystad Energy found that Guyana leads the world in offshore crude oil
discoveries since 2015.
While
the PSA is currently a source of political contention, the projected revenue to
be derived from it is impressive. Guyana’s profit oil and royalty just from
Liza Phase 1 and 2 at an oil price of approximately $50 per barrel could be $3
billion (US) after five years and $25 billion (US) over the life of those
projects. A windfall of that magnitude is sorely needed in Guyana, where the
government has struggled to fund education and healthcare. Much of the
population does not have access to paved roads, modern hospitals or reliable
electricity.
The
pace of development of this deepwater prospect has also been impressive. Most
offshore projects take between 4 and 10 years to begin production even in
shallow waters close to shore. Guyana’s first oil production at the Liza Phase
1 site is due to start in 2020.
Funding
has poured into the country and made Guyana the fastest-growing economy in the
Caribbean. But the long-running political battle is diverting attention from
critical needs, such as the development of a revenue-management framework and
plans to overhaul the nation’s infrastructure, education system and healthcare
network.
It is amid all of this political turmoil and international disputes that the ExxonMobil-led Consortium must continue the development of this major resource. None of it is easy or simple, but the potential prize for both the Consortium members and the people of Guyana makes the risk well worth taking.