SINCE the Liza discovery in 2015, Guyana has experienced an astounding 90% success rate in economically viable wells. Exxon and its Stabroek Consortium partners have made 18 commercially viable oil discoveries so far after an exploration campaign of unprecedented size. But we shouldn’t forget that 40 wells were drilled offshore Guyana before Liza, and none of them found oil.

The news last week that Exxon’s first well on the Kaieteur Block, Tanager-1, failed to make a commercial discovery serves as a reminder that even in the richest basins, there are huge financial risks for those that decide to invest in exploration. Tanager-1 highlights the many unknowns that come with expanding into newer areas beyond the established Stabroek Block.

An unsuccessful well can take two forms. First, a well can be dry, meaning that it does not really have any oil or gas. Second, a well can be deemed non-commercial if the drilling site would not produce enough oil to make further investments in drilling and well infrastructure economically viable. While a dry well becomes a sunk cost for a company, a non-commercial well could become viable if nearby exploration continues and is also successful.

For example, Tanager-1, the deepest well ever drilled offshore Guyana, does not have sufficient oil to make it economically viable alone. But additional exploration to develop nearby blocks could uncover areas viable for development. However, this creates greater risks and costs for the developing company as nearby wells could be dry or not add sufficient economic gain to continue development. Although the Stabroek has seen unusual success, commercial discovery rates offshore in frontier regions globally are normally very low. A 2015 study found that in frontier areas on the Atlantic margin, only 7% of offshore wells resulted in commercial finds.

The amount of oil or gas needed for a find to be commercially viable varies based on the costs of production and development in a region. Offshore wells, especially those in very deep water, are expensive projects and so the minimum amount of oil needed for feasibility is high.

As explained in recent weeks, the money that a company invests to explore a region can only be recovered if a company finds oil and moves forward to production. Companies taking on exploration incur risks the moment they begin work. These risks double or even triple if they continue to explore near a dry or non-commercial well and insufficient resources are found. If the money spent on continued exploration does not yield additional commercially viable wells, then that money is a sunk cost for the company.

In the case of Guyana, the oil company bears the financial risk of exploration if the oil discovered does not lead to oil production. The government reaps the benefits without shelling out initial money.

Despite the early disappointment on Tanager-1, Exxon says it will continue to evaluate the data and is still planning on an active drilling programme even though success is not 100 percent guaranteed. The company and its partners are planning to deploy a fifth drillship offshore Guyana, and drilling is expected in the Canje Block at the Bulletwood prospect by early 2021. Two more wells at the Jabillo and Sapote targets could also be drilled in 2021. Suriname is also working to repeat the successes found in the Stabroek Block and is eagerly seeking investment. The country expects to see Apache drill a fifth well in the Bonboni prospect in 2021.