From Rags to Riches: Guyana’s Meteoric Rise as a Petrostate

Oil fell at the end of the summer season in the US, with fears of an economic crisis in China weighing heavily on the outlook for oil. As such, the the international benchmark Brent fell by more than 12% in one month to lows not seen since early 2022, although following rising tensions in the Middle East, it has rebounded to fall 4% in that period. This forced The OPEC+ consortium will delay plans to increase production to December 2024. Steady growth in non-OPEC global supply is speculated to limit any recovery, with the impoverished South American country of Guyana recently emerging as a major international oil producer and exporter. The former British colony, long ignored by Big Oil, will become not only South America’s largest oil producer, but also a key driver of global oil supply growth.

After decades of poor drilling results, Guyana quickly became a major global oil producer after a series of world-class discoveries made by a consortium led by Exxon in the 6.6 million acre offshore Stabroek block. The block, in which Exxon is the operator holding a 45% working interest, with partners Hess and CNOOC controlling 30% and 25% respectively, is located in Guyana’s territorial waters adjacent Esequibo region disputed by Venezuela. Since 2015, Exxon has made nearly 40 discoveries believed to contain at least 11 billion barrels of oil. The first discovery came in 2015 with the wildcat Liza-1 well, followed by the Payara and Liza Deep discoveries in January 2017, with the Liza 3 appraisal well finding a 100 to 150 million barrel reservoir beneath the existing oil field Liza. The Stabroek block is speculated to contain oil reserves of more than 11 billion barrels, with the acreage having the potential to eclipse Brazil’s proven and probable reserves of 23 billion barrels, the second largest in South America.

The Liza Phase One project began operations in December 2019 with the commissioning of the floating production, storage and offloading (FPSO) vessel Liza Destiny, which can lift 120,000 barrels per day. Then, in February 2022, the Liza Phase 2 project was completed, with the 220,000-barrel Liza Unity FPSO starting operations. By the end of November 2023, the Payara project was completed, with the 220,000 bpd Prosperity FPSO starting operations. This expanded the capacity of the Stabroek block to 560,000 barrels per day. After upgrades, those facilities, as of January 2024, pumped more than 600,000 barrels per day. These developments, completed at a blistering pace, underline the fact that Stabroek Block it’s a trillion dollar opportunity for Exxon, its partners and Guyana.

In a stunning development, it took a only four years for Guyana since the first discoveryachieved in 2015 with Exxon’s Liza-1 exploration well, to first oil in 2019. This is incredible because it usually takes a decade or more to develop multi-billion dollar offshore energy projects. Indeed, industry data shows that it takes an average of seven years for an oil field to reach production, with at least a quarter of projects taking even longer to get first oil. Deep offshore fields, depths greater than 4,000 feet or 1,219 meters, such as those developed in Guyana and Suriname, are among the most difficult and slow to develop. The pitfalls of deepwater development are evident from Suriname’s Block 58. Despite TotalEnergies and APA Corporation making the first breakthrough with Maka Central-1 wildcat well in January 2020, multi-billion dollars The Final Investment Decision (FID) has been postponedfirst oil isn’t expected until 2028, over eight years later.

In August 2024, Guyana’s Minister of Natural Resources, Vickram Bharrat, announced that the country’s oil reserves increased by 600 million barrels to 11.6 billion barrels. This happened because of Exxon’s latest oil discoveries in the prolific Stabroek block. As a result, the South American country of less than a million now holds the continent’s third-largest oil reserves, behind Brazil, which has about 16 billion barrels of proven reserves, and Venezuela, with 303 billion barrels, the largest from the world. This abundance of high-grade discoveries in the Stabroek Block indicates that the oil potential of the Guyana Basin far exceeds the Suriname volumes calculated by the US Geological Survey (USGS). The The US government agency determined the basin holds up to 33 billion barrels of crude oil, but recent discoveries indicate that the true oil potential of the basin is significantly higher.

Foreign energy companies, especially Big Oil, are investing huge amounts of capital in exploration and development activities offshore Guyana. In addition to Exxon’s stunning exploration success in the Stabroek block, a key attraction is the high-quality crude found. Oil from the Liza oil field has a medium density and is sweet, with Exxon’s test shows an API gravity of 31.9 degrees and 0.59% sulfur. These are essential features in a world where strict emission standards make it expensive and complex to refine heavier, more sour crude into low-emission fuels. The oil discovered offshore Guyana outside the Stabroek block possesses similar qualities. One of the most important discoveries was with the Wei-1 well in the northern section of the Corentyne block. The oil found was of medium quality and sweet, but according to operator CGX Energy, reservoir qualities are analogous to those of the Liza-1 discovery.

As Guyana’s energy investment flows increase and oil reserves increase, production in the small South American country will expand as more discoveries are made and new projects are launched. Exxon is developing four projects in the Stabroek block, scheduled for completion between 2024 and 2029. The first is the multibillion-dollar, 250,000-barrel-per-day Yellowtail development, which is expected to come online by the end of 2025. It will be followed by the Uaru and Whiptail projects, both with the capacity to raise 250,000 barrels per day, which will start up in 2026 and 2027 respectively. The final facility under construction is the Hammerhead project, which is expected to start raising oil in 2029, adding 180,000 barrels per day at production from the Stabroek block. These facilities will add 930,000 barrels per day to Guyana’s oil production, bringing production to approximately 1.5 million barrels per day by the end of the decade.

Exxon recently completed work on FPSOs Liza Destiny and Liza Unity, which commenced on 2 July 2024. This interrupted production in the Stabroek block, which saw it fall to around 500,000 barrels per day by the end of in July 2024, significantly less than the 663,000. barrels per day raised a month earlier. Exxon’s statements show that both FPSOs are now pumping at full capacity, with production returning to June 2024 levels of around 660,000 barrels per day. This work took place to complete the pipeline connections for a gas-to-energy project, which will start operating by the end of 2024. It will bring the associated gas produced by the Liza FPSOs to shore via pipeline for processing at a facility sponsored by the government. facility on the west bank of the Demerara River. The traded gas will burn a 300 megawatt power plant to generate electricity, which Georgetown claims to cut local electricity costs by up to 50%.

For these reasons, The US Energy Information Administration (EIA) said. Guyana has become a key contributor to the growth of global oil supply. In its short-term energy outlook, the US government agency predicts that the former British colony will lift 865,000 barrels of crude oil per day by November 2025. This will make Guyana South America’s second largest oil producer after Brazil in while it will rank the country. 20th globally, ahead of Colombia and Oman. The impoverished South American country’s fast-growing output makes it the third-fastest-growing non-OPEC oil producer globally, behind the top-ranked US and Brazil, making it a key contributor to the world’s oil supply. oil.

However, fears arose that a dispute between Exxon and Chevron would impact development of the prolific Stabroek block. Houston-based Exxon, operator with 45% interest in Stabroek Block and CNOCC partner claim that Chevron’s $53 billion acquisition of Hess triggered the right of first refusal to sell the takeover target’s 30% stake in the block. As such, both supermajors are now locked in arbitration, where Exxon claims that takeover is a change of controlactivating his right of first refusal. The Houston major has signaled that it might the bid for Hess’ share of the Stabroek block if he will win but not acquire the company. This is a blow to Chevron as analysts estimate the value of Hess’s stake in the Stabroek block to comprise up to 80% of the $53 billion bid. Chevron claims there is no change in ownership because Hess will remain intact and become a subsidiary if the takeover, which Hess’ shareholders approved the earnings.

By Matthew Smith for Oilprice.com

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