Understanding Energy: Beyond the Stabroek Block

JUST a few weeks ago, the Understanding Energy column noted that international oil and gas research firm, Wood Mackenzie, was careful to say in its report and podcast that few discoveries had been made in the Guyana Basin outside the prolific finds that the Exxon-led consortium has made in the Stabroek Block.

But there are early indicators that trend is beginning to change.

Since that column, Canadian driller Eco-Atlantic and its partner, UK-based Tullow Oil, announced that they have identified several prospective geologic formations in the Orinduik Block on the Western border of the Stabroek. According to news reports by Reuters, the two companies have commissioned a resource study called a competent person’s report (CPR) on 10 large prospects in the block that could contain oil.

These prospects border the portion of the Stabroek Block where Exxon recently made its ninth discovery at the Hammerhead-1 site. While no wells have been drilled yet in the Orinduik Block, seismic surveys showing high potential and potentially similar geologic formations to what was found at the Hammerhead-1 well, are encouraging signs.
Eco-Atlantic owned 40 percent of the block at the time of the announcement, but Total, a French energy company that is one of the world’s largest oil producers, recently invoked a “farmout” agreement to buy most of Eco-Atlantic’s share.

Farmout agreements are clauses within oil and gas industry contracts that give a company an option to buy a piece of another company’s stake in a block for a prearranged fee. In this case, Total paid $12.5 million USD, which will help to fund Eco-Atlantic’s share of the costs for drilling two wells and to cover the expense of seismic exploration.

This is standard practice in the oil industry. A smaller oil company does the initial exploration activities and then “calls in back-up” in the form of a large international oil company, like Total, that has the resources, capital, and know-how to drill the exploration well and potentially develop a new find.

Though Total legally had several months to decide on invoking its farmout agreement and had signalled previously that it would wait for a final seismic report, it chose instead to buy into the project within days—a decision that was widely seen in the investment community as a vote of confidence in the overall potential of the block.

While Total and Eco-Atlantic collectively own 40 percent of the equity of the field, Tullow Oil remains the operator of the project. Tullow has a reputation in the industry for making bets on still-emerging oil regions and it hopes that will pay off in Guyana. Tullow and its partners have announced that initial drilling will likely commence in the third quarter of 2019, just before Exxon starts much-anticipated production at its Liza Phase 1 project.
The developments in the Orinduik Block are further proof that the investments and discoveries made by Exxon and its partners are driving international interest in Guyana, and that interest is increasingly translating into tangible investments. Guyana’s offshore blocks are a hot commodity;and the arrival of Total means that other major international energy companies are taking note.

That is likely to continue as long as Guyana remains an attractive place to do business. Stable fiscal terms that formed the foundation for initial exploration will be critical in ensuring continued interest from international players. For that reason, well-thought-out government policies and strong investor protection are critical.

Already, Wood Mackenzie reports have found that Guyana accounted for as much as 15 percent of all offshore conventional oil finds since 2015. And with additional prospects on the horizon, it could mean more jobs, more business for local companies, and more revenue for the government, once production begins.

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