THE past several weeks has seen a series of signals that Guyana’s future oil production could be even more extensive than previously believed. News of new finds, updated resource estimates and predictions of record revenues have triggered widespread excitement despite ongoing elections-season controversy.
In early January, Exxon announced a new find at the Uaru well and released new estimates that placed Guyana’s recoverable resource base at more than eight billion barrels of oil equivalent, an increase of two billion barrels from the previous estimate.
The new resource estimates place us in the company of some of the industry’s most established players like Angola, which has around 8.2 billion barrels, and well above major producers like Mexico and Norway which each have around seven billion.
This estimate does not even include the most recent 16th discovery made last month at Uaru. Most of the new oil estimate comes from finds over the last few months made at Tripletail and Mako to the south of the Liza One well, where production is already underway. With new estimates like these, it’s worth looking into how they’re determined.
The distinction between reserves and resources is an important one.
Resources indicates how much oil exists that could potentially be recovered. It’s a difficult number to estimate precisely but it follows predictable trends—rising with new discoveries and new technologies for extraction, falling with production and depletion. Reserves, on the other hand, indicate how much oil can be economically extracted at current oil or gas prices. That means proved reserve estimates rise and fall based on global commodity prices and how costly the oil will be to extract.
Just because oil resources are found, it doesn’t always mean they’re commercially viable. Tullow Oil is currently reevaluating the commercial potential of their finds on the Orinduik Block, after the resources turned out to be lower quality heavy oil, which is more costly to extract.
The wells on the Stabroek Block have mainly been high-quality oil so far, with varying percentages of gas. These too can be difficult to immediately calculate. Careful analysis is necessary to determine what the most efficient commercial use of associated gas is—whether reinjecting it to help increase oil production or, if there are substantial quantities, potentially piping it to shore.
Explorers are keen to see the pace of discovery continue. By the end of 2020, there will be at least five drillships operating in the Stabroek Block alone, drilling more production wells and exploring new areas that geologists and geophysicists suspect might contain oil.
There are also exploration efforts ongoing on several blocks surrounding the Stabroek. Across the maritime border in Suriname, Apache and Total hit oil last month at the Maka-One prospect and have identified several more prospects on Block 58.
Here in Guyana, Repsol is revaluating drilling in the Kanuku Block after a find in January which was not commercially viable. Tullow is also evaluating next steps with its partners, Total and Eco Atlantic, in the Orinduik Block where it previously struck oil. Deepwater drilling comes with high cost and risk, but the general state of excitement among drillers remains with hope that there may well be a lot more oil to be found off Guyana’s coast.
Just last week, Norwegian energy analyst, Rystad Energy, dove deeper into what these larger reserves could mean for Guyana in terms of opportunity and government revenue.
Since costs are still being recouped by the drillers, government income is projected to be around US$270M this year. But that’s on track for rapid growth and Rystad predicts Guyana’s total annual oil revenues will hit nearly US$30B within 10 years. Rystad estimates that our total oil production could be 1.2 million barrels per day by 2030. These predictions assume an average $65 price per barrel of oil.
Rystad also noted in its research that the fiscal regime and production sharing contract were “In line with other emerging oil and gas countries,” with Guyana having an overall government take of 60 per cent. The analysts did expect that new production contracts for new blocks would have higher government take, now that the initial investments have been made to de-risk the area.
Between 2015 and 2019, oil companies invested around US$8B in exploration and development activities in Guyana. With the current production sharing agreements, the companies took on all the risk that came with this money – if the wells had turned out to be dry, they would have had to absorb those losses completely. Since oil was found, the companies will be able to recoup those costs from production.
Sonya Boodoo, Vice-President of Upstream Research at Rystad Energy, cautioned that for Guyana to realise the full revenues, a “stable regulatory and fiscal environment will be a key factor.” Much of our success so far has been because of the unusually smooth and rapid transition from discovery to production that companies have been able to achieve here.
Maintaining that kind of investment-friendly environment long term will be critical for Guyana. All future estimates include oil production from projects on the Stabroek Block and other parts of Guyana’s offshore territory that haven’t been built or fully explored yet. That’s why it’s so important that responsible development continue to proceed at a steady pace.
