SINCE its first successful well in 2015, ExxonMobil Guyana has announced at least 20 significant discoveries and started producing oil on a regular basis. Most recently, the country received its seventh oil lift in just the last 18 months from the Stabroek Block’s Liza Phase 1 project. Recent finds like those at Uaru-2 and Longtail-3 in the Stabroek Block are likely to push Guyana’s estimated reserves past 9 billion barrels of oil equivalent.

But while this is all positive news for Guyana, it is important to understand just how unusual the situation in the Stabroek Block currently is, especially in the high-risk world of deepwater exploration. Despite the success in the Stabroek Block the broader Guyana Basin is still largely a frontier region.
Non-commercial finds occur when the oil discovered will likely cost more to develop and produce than it is worth. Guyana has experienced a 90 percent success rate in economically viable wells in the Stabroek Block, but that good fortune is exceedingly rare. There were more than 40 unsuccessful wells before Guyana’s first commercial find in 2015 at Liza 1.

This is far from normal in the global oil industry where commercial offshore drilling is notoriously risky. Analysts at Westwood Energy found that the overall frontier exploration success rate hovered at just 6 percent from 2014-2019, with just nine new commercial developments from 154 wells.
Even in the North Sea, a historically oil rich region, only 23 percent of wells have yielded commercial finds over the last five years. Westwood also found similar rates of success offshore across most of the regions it studied, with success rates rarely remaining above 30 percent in the longer term even for longstanding oil producers. That makes the Stabroek Block’s five year run all the more exceptional.

That has sadly not been the case for other blocks in Guyana, including the Kaieteur, Canje, Orinduik and Demerara blocks. ExxonMobil, the operator of the Kaieteur and Canje blocks, has yet to make a commercial discovery there despite three wells drilled to date. In just the last few months, we learned that ExxonMobil drilled non-commercial wells at Tanager-1 in the Kaieteur Block and at Bulletwood-1 Jabillo-1 in the Canje Block.

Tullow and Eco-Atlantic have announced that drilling efforts will continue in the Orinduik block into 2023, but the companies have not yet announced a clear development path forward despite extensive investment and exploration. Although they made discoveries Jethro and Joe wells, the commercial prospects for both finds are undetermined. Tullow and Repsol made an additional find at the Carapa-1 site on the Kanuku block, but its commercial prospects are also undetermined at this point.

Suriname drilling has also had mixed results. After three significant discoveries by Apache and its partners in Block 58 near the maritime border with Guyana, subsequent large-scale commercial discoveries have been elusive other than a discovery by ExxonMobil and Malaysia’s Petronas on Block 52 last December.
While the news has been disappointing so far, exploration companies incentivised by Guyana’s contract terms and stability continue to drill wells in the hope that one of these blocks will prove as lucrative as the Stabroek Block. GCX Energy plans to drill two exploration wells this year on its Corentyne and Demerara blocks, while Tullow and its partners in the Orinduik block told Offshore Magazine last month that they are assessing drilling targets with an expected resumption of drilling in 2022. For its part, ExxonMobil has six drill ships operating off the coast and planned a record 15 wells for 2021.

Companies take on huge risk each time they drill a new well, especially those in deepwater areas, commonly defined as depths greater than 300 metres. Researchers at Louisiana State University estimated in January that an average deepwater well in an offshore area like Newfoundland costs around US$90 million to explore and drill.
One advantage of production sharing agreements like Guyana’s is that they shift some of these financial risks associated with exploration and development to companies instead of the government. Under some contract structures like national oil companies or service contracts, the government of a country must put up money to invest in oil exploration and development. If no oil is found during the exploration phase, this money is lost. Even if oil is found, it can be several years before production begins and the investment in development begins to pay off. But in Guyana’s case, if oil is not discovered and produced on the block, the government owes nothing no matter how much was spent on exploration.

Even in the case of a successful commercial find where companies can recover costs, the government never carries financial debts to an oil company. Royalty and profit-sharing arrangements like Guyana’s also help insulate countries from price drops since the government receives both a percentage of revenues (the royalty) and an equal share of production revenues after cost recovery, which is capped at 75 percent of revenues on the Stabroek Block.

As exploration continues offshore, Guyana is fully insulated from the financial risks associated with non-commercial wells but will still share in the profits if oil is found.
That’s crucial since large areas of Guyana’s offshore territory carry significant risks and commercial projects haven’t been confirmed yet from the existing discoveries. While Guyana has been fortunate with Stabroek Block discoveries so far, performance elsewhere in Guyana’s offshore territory shows the challenges and costs that come with deepwater drilling.