Understanding Energy: FID for Liza Phase 2

EARLY in May, ExxonMobil and its partners announced that they made their final investment decision (FID) for Liza Phase 2 in the Stabroek Block. The consortium confirmed that they had received final government and regulatory approval, allowing the project to move forward, following weeks of discussion with the EPA to ensure that the companies have appropriate insurance in place for the work.

FID was the last major step before Phase 2 work begins, which will represent a massive expansion of the offshore oil sector when Phase 2 becomes operational in mid-2022. According to an ExxonMobil release, Phase 2 is expected to cost $6 billion and will contribute up to 220,000 barrels of oil per day to Guyana’s overall production, substantially more than the 120,000 barrels per day from Phase 1.

Projections for total production from Guyana at peak levels are around 750,000 barrels per day, with Phase 2 contributing a significant portion of overall potential production. Over its lifetime, Liza Phase 2 is expected to produce 600 million barrels. To do so, the consortium intends to develop six drill centres, as well as approximately 30 wells, including 15 production, nine water injection and six gas injection wells.

As this column has addressed previously, in the oil and gas industry, FID relies on three different elements: front-end engineering and design (FEED), economic prospects and regulatory approvals.

During FEED, operators map out and try to solve any possible engineering and operational challenges. Operators then evaluate economic prospects by securing buyers, shipping agreements, land-use approvals, financing, permits, engineering, procurement and construction contracts. These components, along with rigorous economic analysis, help companies determine whether the investment will produce targeted profits. Finally, and most importantly, companies must receive formal approval from local governments and regulators.

Because of this extensive process, reaching FID represents a significant sign of confidence by a company or consortium. It is essentially the point at which an operator has determined that everything is in place for the project, that the project makes fiscal sense, and that the execution phase should begin.

The beginning of the execution of Phase 2 creates new opportunities for Guyana. First and foremost, the projected 220,000 barrels per day will add to the revenues Guyana will gain from the Stabroek project PSA, which gives the government 50% of profit oil production plus a 2% royalty. These revenues will make up the primary flow of direct benefits from the offshore work to Guyana’s economy.

But an additional phase of development also means that the scale of operations is increasing. As noted above, the consortium will be executing a range of new activities such as developing well centres and drilling. These operations will require more offshore personnel and more onshore support, many of whom will be hired locally.

This process of local content development is already underway. ExxonMobil has announced that the company’s Guyanese direct and indirect workforce more than doubled in 2018, to more than 1,000 workers. Local businesses are also positioning themselves to provide more services to the industry. It is critical that businesses continue to compete for and win new opportunities to help drive economic development in Guyana.

Early entry and participation in the new oil and gas industry is important for Guyanese individuals and companies. Production activities will continue far into the future. Gaining a foothold as a qualified and capable service provider will help cement profitable, long-term economic relationships. The Stabroek consortium has also indicated that FID on a third phase of the drilling, on the Payara prospect, is targeted for later in 2019. That phase could produce 180,000–220,000 barrels per day.

Guyana can expect the build-up for operations to continue to pick up speed. Capturing the associated opportunities will be an important objective and a primary focus across Guyana, for civil society, private sector and the government to increase prosperity in Guyana.

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