THE news, last week, that UK-based Tullow Oil discovered oil in the offshore Orinduik Block confirms what many international analysts had long suspected and what many Guyanese had hoped for: that Guyana is truly an emerging oil power.

Tullow is the operator of the Orinduik Block and owns 60 per cent of it. Canadian company Eco-Atlantic and France’s Total hold minority stakes, although Qatar Petroleum recently announced a deal to potentially acquire part of Total’s share.
The Jethro-1 well is Tullow’s first successful find on the block and the first one in Guyanese waters outside the Stabroek Block. The company is expected to start drilling on a second exploration well, Joe-1, later this month.

Tullow has already announced that it will be shifting regional operations from Trinidad to a new shore base in Guyana over the next two years as a result of the find, a show of confidence in the reserve potential which could bring a surge of new jobs and opportunities for local companies in construction and services. A new base would play a key role in supporting offshore drilling and production vessels. An exact site for the facility has not yet been announced.

This oil discovery, estimated at more than 100 million barrels, also signals to international investors and oil companies that there is much more to be found beyond the Stabroek Block—where Exxon and its partners have found more than 6 billion barrels so far in 13 separate discoveries.

The Orinduik lies to the west of the Stabroek in shallower waters that make drilling slightly easier than in the deeper Stabroek. Tullow found oil-bearing sandstone in a layer of Upper Tertiary sediment more than 4400 metres below the ocean surface. That find increases the chance of success and reduces the risk for the Joe-1 prospect, which will be drilled in a similar layer by the same drillship– the Stena Forth.

The find is likely to help draw a new wave of interest in Guyana and its offshore blocks, giving the government a good opportunity to negotiate for more favourable fiscal terms in new leases without spooking investors by threatening the sanctity of existing contracts. This is a common practice for countries—once a region has been “de-risked” by initial exploration, the terms for future contracts in nearby areas don’t need to be as generous to attract investment.

A wave of new investment could mean even more opportunities for local companies and workers, not to mention the increase in revenue, which is already predicted to be in the billions of US dollars by the mid-2020s.

Those previous estimates only include the Stabroek discoveries that have been made and don’t include any additional revenue from new production areas. Guyana will receive half the profits from the Stabroek wells and an extra 2 per cent royalty out of pre-cost revenues, per the terms of the production-sharing agreement with Exxon and its partners.
Tullow also owns a stake in the Carapa-1 prospect on the Kanuku Block. Spanish oil company, Repsol, is the operator and majority owner of that block with Tullow and Total as minority owners. Kanuku is another promising new region for Guyana, closer to the coast in shallow waters. Shallow water regions commonly have much lower costs and are considered less risky than deepwater areas.

Discoveries in these blocks could create a domino effect that would bring more international attention, leading to more investment in other blocks which haven’t been leased as yet.

When a new region like Guyana is still considered frontier, meaning it has no history of production, oil blocks may be large to allow for exploration over a wide area and increase the likelihood of a successful find. As a region becomes a more established prospect and producer and companies see less risk in investing there, oil blocks often shrink in size so the government can auction off more of them.

Tullow is currently evaluating the find to more precisely estimate recoverable reserves and plan for production. Analysts predict that first oil from a potential project won’t be until the early 2020s, depending on how other discoveries on the block unfold.