WITH first-oil expected in less than a year, it’s worth looking back now to where Guyana’s new oil boom started. Before 2015, sporadic attempts at offshore drilling had yielded no resource finds of any significance. In oil industry terms, that made Guyana’s offshore a “frontier” region—one with no history of exploration success or oil production.
But since that time, a series of 12 successful discoveries totalling more than 5.5 billion barrels of oil equivalent have put Guyana on track to eventually make us one of the largest oil producers in South America.
When the consortium of companies led by ExxonMobil first struck oil about 200 km off the coast in 2015, they were drilling what are referred to in the industry as “wildcat” wells. These initial exploratory wells pose some of the biggest uncertainties for companies in the industry.
In an unproven region without any known resources, companies that are willing to forge ahead and drill exploration wells are known as “wildcatters” and the test wells they drill are called “wildcats.” The terminology stems from the early days of oil exploration in the remote American West.
“Wildcat” wells can make or break small firms, as the investment risk can amount to millions of US dollars with no guarantee they will find anything. Oftentimes, the companies will be counting on the proceeds from a successful well to recoup their costs. However, if they are unsuccessful, the results can be devastating. Therefore, large companies are better placed to absorb those costs, but are sometimes unwilling to take on such financial risks.
Drilling offshore wells like those that were drilled in Guyana’s waters require contracting drillships that often rent for more than US $300,000 per day, months on end. And drilling only begins after extensive logistical preparation, safety checks, tests, and exhaustive seismic surveys to map the geologic formations under the sea floor. These efforts are intended to improve the chances that a well will be successful.
Under the production-sharing agreement between Guyana and the exploration companies, the companies assumed all of the costs and financial risk of drilling “wildcat” wells. Under this agreement, the government is insulated from loss and the companies make a profit only if the wells strike oil.
Guyana’s agreement was structured to incentivise investment and financial risk- taking by international companies. These incentives worked and attracted some of the most capable international energy companies to invest in Guyana, including ExxonMobil.
The success by the early “wildcatters” on the Stabroek Block has highlighted Guyana as a bright spot on the map for the international energy industry. Since 2015, numerous companies have invested here—including many companies that aren’t oil producers themselves, but provide key services and logistics to offshore operations.
By now, Guyanese may know the names of some of the companies that have taken notice of our early success and decided to drill new “wildcat” wells off the coast in coming years. These include Tullow and Eco Atlantic, which are planning to drill Jethro-Lobe site in the Orinduik Block.
Successful wells to date have all been located on the Stabroek Block, so other areas offshore Guyana are still largely considered a frontier region. But as new wells are drilled on other blocks and when oil production begins next year, Guyana’s transformation into an important and established energy exporter will be well on its way. As companies in the oil and gas sector and their contractors continue to flock to Guyana, it’s worth remembering where this started just four years ago and celebrating what Guyana has done right to encourage this kind of rapid development in a responsible way.