Guyana's new crude frontier?

The Liza oil find offers the promise of an economic boost for the country but the government must plot its course carefully

You have 1 free article remaining Subscribe now for unlimited access or become a Bronze Member for free



For queries see our FAQ or contact us Subscribe Bronze Sign-up Member Login

The 2015 oil discovery at Liza, offshore Guyana, was a landmark well. It marked the end of an eight-year campaign to find a follow-up to the 1.8bn-barrel Jubilee play, which opened Ghana's Tano Basin in 2007. The search, along what is known as the Atlantic Transform Margin, had until now proved elusive: 24 unsuccessful wells had been drilled at a cost of $3.4bn (probably more than $6bn when seismic and general and administrative costs are included).

Like Jubilee, the trap at Liza appears subtle and largely stratigraphic in nature: one not easily seen in the seismic data without sophisticated geophysical processing. The geological age of the source rock and reservoir are similar, consisting of Late Cretaceous deep-water sandstone reservoirs overlying rich Late Cretaceous aged source rocks. Operator ExxonMobil reported 90 meters (m) of net oil pay and has been upbeat about the discovery.

The Stabroek licence, where the Liza discovery was made, was first issued to Exxon in 1999. It is huge, covering 26,800 square kms (6.6m acres). Hess and Cnooc/Nexen entered the licence through a farm-in in 2014 (Exxon 45%, Hess 30%, Cnooc 25%). But Liza has caused a few red faces too. Shell chose to leave the licence before drilling and many other companies turned down the chance to buy a stake.

Exxon moved quickly into early engineering studies and an appraisal programme designed to delineate the field and test for reservoir continuity. On 30 June 2016, the company announced that Liza-2 had met 58m of oil pay and estimated the recoverable resource at 0.8bn-1.4bn barrels of oil equivalent. The Liza-3 appraisal well was completed in October 2016 and Hess indicated that, based on the result, the estimated recoverable resources were now at the upper end of the range. Significant associated gas volume contributes to the resource and the initial development plans show it will be re-injected.

The field was declared commercially viable in November 2016 after four reservoir penetrations-just 18 months after discovery-and a field-development plan has recently been submitted to Guyana's government for approval. A staged floating, production, storage and offloading (FPSO) development looks likely, with an initial production capacity of 100,000 barrels a day, potentially increasing to around 200,000 b/d when the field is fully developed. A preliminary published plan showed an initial 17-well development including producers, water injectors and gas injectors across two drill centres feeding a 100,000-b/d-capacity FPSO.

Acreage in the play has been licensed under fiscal terms that reflected its frontier nature when the drillers arrived. Guyana's production-sharing agreement model is fairly simple, with a 75% cost-recovery cap and a 50:50 profit share with no tax or royalties to be paid. Fiscal terms for new licences will reflect the lower risk and contractor shares will be lower. Preliminary economic modelling by Richmond Energy suggests the field could have a break-even oil price in the low $30s.

The jury is out

The first follow-on exploration test to Liza at the Skipjack prospect was disappointing-the reservoir was present but no hydrocarbons were found. Hess reported that seismic studies carried out before drilling suggested the presence of oil. This suggests that even with two Liza wells to calibrate seismic data, direct detection of hydrocarbons from seismic data could not yet be done with confidence. The next test well, Payara, is similar, but smaller, and located between the successful Liza and dry Skipjack wells. At the time of writing the test results had not yet been made public but companies with acreage nearby are planning more test wells. Tullow Oil, Kosmos Energy and Apache all plan to drill new wells in 2017 in the adjacent Suriname waters, but they won't necessarily target the same play.

The jury is still out as to whether Guyana-Suriname is the multi-billion-barrel basin the industry has been searching for, or if it is on the same scale as Ghana's 2bn-3bn-barrel oil province. But Exxon has moved quickly to snap up as much acreage as possible, leaving little available to other operators in either Guyana's or Suriname's waters.

Success at Liza could also be important politically for Guyana. With a population of just 0.8m, oil production could make the country the highest per capita oil producer in South America. Output of 200,000 b/d would equate to 91 barrels per person, per year, or three times that of neighbouring Venezuela.

Richmond Energy estimates that with oil prices of $60/b, government revenue could peak at around $2bn per year. This compares to just $1.1bn in 2016. Guyana's windfall will need careful managing.

A black/Asian-Indian ethnic split-a post-colonial legacy-dominates the country's political landscape. The present coalition government, comprised of A Partnership for National Unity (APNU) and the Alliance For Change (AFC), took power in May 2015 after winning a narrow majority over the People's Progressive Party, which had held power for 23 years. The APNU/AFC government is relatively inexperienced and will be cautious in its approach to the country's upstream, balancing the need to keep investors happy with the imperative to put institutions in place, including a sovereign-wealth fund, to manage the oil windfall.

Guyana's windfall has irked Venezuela, which has long held a claim to over half of its neighbour's territory. Guyana is confident in its case and has referred the dispute to the UN. But Venezuela probably wouldn't accept a UN ruling that wasn't in its favour. The current boundary was set in an 1899 tribunal that favoured Guyana. It was reasserted when Guyana claimed independence in a 1966 Geneva agreement despite Venezuela consistently challenging it. Venezuela has held claims to large areas of land up to the Essequibo river, about 60% of Guyana's total land area. Venezuelan President Nicolás Maduro has issued a decree claiming most of Guyana's continental shelf, and even some of Suriname's, exposing the country to possible aggression. This could create complications for upstream operators. The government will probably want to keep the Exxon-operated Stabroek licence intact for as long as possible within the disputed maritime area.

And Guyana will want to avoid the mistakes made in Ghana. It brought the Jubilee project on stream in record time, just three years after discovery. But oil production levels and state revenues have been disappointing due to operational mishaps, government mismanagement. and its maritime-border dispute with Côte d'Ivoire, which has interrupted exploration. The development of the Liza discovery, and Guyana's future, depends on it.

* Keith Myers is Managing Director of Richmond Energy Partners

Please enable JavaScript to view the comments powered by Disqus.