A Caribbean success story

Major oil discoveries offshore Guyana have propelled the former British sugar-growing colony from a frontier province to an oil and gas hot spot, writes EIC’s Pietro Ferreira

Guyana is the world’s newest oil and gas player. As multinationals firmly establish themselves in the capital, Georgetown, barges that once transported the country’s famed sugar on the Demerara River have been replaced by platform supply vessels carrying state-of-the-art oil and gas equipment. And a floating production storage and offloading (FPSO) unit, sporting the colours of the Guyanese flag, is producing oil some 160km off the coast.

The Stabroek block

In December 2019, Guyana joined the ranks of world oil producers after ExxonMobil started operations at the 120,000bbl/d Liza Destiny FPSO. First oil came less than five years after the oil major announced the Liza-1 discovery on the Stabroek block. Located in the deep waters of the Guyana- Suriname basin in northern South America, Stabroek is home to 16 discoveries to date – the most recent announced in January 2020. According to latest estimates, all discoveries combined contain recoverable reserves of 8Bbbl of oil equivalent – a number that is likely to increase as drilling work leads to new hydrocarbon discoveries.

Development phases

Liza Destiny was the first of at least five FPSOs to be installed on the Stabroek block. A second development phase will also feature an FPSO at the Liza field, but with a 220,000bbl/d oil processing capacity. The vessel – Liza Unity – is under construction in Singapore, and the unit will be the first to be provided by SBM Offshore under the contractor’s Fast4Ward standardisation programme. Similar to Phase 1, TechnipFMC and Saipem will be responsible for subsea trees and SURF equipment, respectively, and start-up is scheduled for 2022.

A third development phase targeting the Payara prospect is already in the works and SBM Offshore has secured the front-end engineering design contract for the 220,000bbl/d unit. An engineering, procurement and construction contract is expected to be confirmed once the project is sanctioned by ExxonMobil. In November 2019, Saipem was selected for the engineering, procurement, construction and installation of SURF equipment. Start-up is expected in 2023.

An additional field development project is expected at the Hammerhead oil field, which has heavier oil than previous discoveries. A 150,000–190,000bbl/d unit could potentially be installed in the area, contributing to ExxonMobil’s target to achieve an output of 750,000bbl/d by 2025.

Guyana’s massive reserves will offer opportunities in the mid and downstream segments

Other players

ExxonMobil’s discoveries offshore Guyana have motivated players hoping to achieve similar success. Tullow Oil conducted a drilling campaign on the Orinduik block, located next to Stabroek, in 2019, leading to the Jethro and Joe discoveries. The company later confirmed that the two discoveries contain 10–15o API heavy crudes, with high sulphur content. Orinduik is estimated to contain 5.1Bbbl of oil equivalent.

Repsol, on the other hand, was not as successful. The company is the operator of the Kanuku block, where the company announced the Carapa-1 discovery in January 2020. Although Repsol initially announced the discovery of 27o API oil, the well was plugged and abandoned after the reservoir proved to be smaller than expected.

Political challenges

The development of Guyana’s oil reserves and the question of who will manage the windfall is at the centre of the country’s political debate. Guyana’s demographics are roughly split between Afro-Guyanese and Indo-Guyanese ethnic groups, a division reflected in local politics.

In December 2018, incumbent President David Granger – whose party is supported by the Afro-Guyanese community – lost a vote of no-confidence in Parliament, triggering elections on 2 March 2020. Although Guyana’s election commission announced a victory for Granger’s ruling party, the opposition – supported by Indo-Guyanese groups – and international observers questioned the transparency of the results, leading to a full recount (ongoing at the time of writing). Both parties support the development of oil and gas reserves, but the opposition has pledged to seek better contract terms with oil companies.

Looking ahead

It is just the beginning for Guyana’s fledgling oil and gas sector. As the discoveries by ExxonMobil and other players increase, new field development projects are likely to be announced. According to an estimate by the financial services company Credit Suisse, there are 25 additional prospects to be explored on the Stabroek block alone, while discoveries already announced merit at least nine development phases.

Looking further ahead, it is possible Guyana’s massive reserves may offer opportunities in the mid and downstream segments as well. There have been discussions on how to monetise natural gas produced offshore, as well as the feasibility of a refinery (GuyEnergy, a local company, has pledged to complete a small-scale modular refinery this year). Current and future projects in Guyana are proof that the country has secured its place among oil and gas players, offering a wealth of opportunities for the supply chain.

By Pietro Ferreira, Regional Analyst, EIC

Image credit | SBM-Offshore