Guyana Oil Development Back In Focus After Chevron, Hess Deal

Last month’s announced $53 billion buyout of Hess
HES
Corp. by U.S. oil major Chevron
CVX
places a new focus on Guyana, as Hess’s 30% share of the massive Stabroek block offshore development operated by fellow major ExxonMobil
XOM
makes up the major prize in that deal. Since development of the resource commenced in earnest several years ago, this tiny South American nation of just around 800,000 people has become the world’s fastest-growing economy, with GDP growth of 62.3% in 2022

CNBC reports that BMI, a Fitch Solutions research group, projects 38% growth during 2023, and that the Guyanese economy could expand by 115% over the next five years. This is a massive economic impact, one so large that the Nicolas Maduro government in Venezuela recently renewed its longstanding claim to own rights along the western extent of the play area. The International Court of Justice (ICJ) ruled in April that it has jurisdiction to decide the controversy, a contention with which Guyana’s President Irfaan Ali agrees, saying, “We’ve allowed this matter to go to the ICJ and we have continuously encouraged Venezuela to participate fully in the process and for both parties to respect the outcome of the process.”

Regardless of the outcome of that controversy, the challenge for ExxonMobil is to continue to develop the resource in an orderly manner with its new partner and competitor Chevron, along with longstanding consortium partner CNOOC, which owns a 25% share. It is the kind of challenge that is not uncommon for developers of international energy projects in distant parts of the world.

A global oil power in the making

“I don’t think it’s going to change where we are headed or any of the dynamics of the development,” Drew Bishop, Development Manager for Guyana at ExxonMobil, told me when I asked about the impact of Chevron becoming a consortium partner. “We feel like that’s a real compliment because it says they have a lot of confidence in our ability to deliver quality investments on schedule and budget.”

The ExxonMobil Guyana team has been delivering such results since 2015, during which time the company has been able to report more than 30 successful discovery wells totaling almost 11 billion barrels of proven reserves. The Lancetfish 2 well announced in late October brought the company’s number of 2023 discoveries to three, as it continues drilling efforts designed to delineate the underground geologic extent of the resource area.

“If you think about what we’re doing out there, we’re exploring and appraising,” Bishop says. “We’re looking for new resource trying to ensure we understand the resources we’ve already discovered. We have the core area where our funded FPSOs are planned, and we’re trying to build on that success with new discoveries and then delineating those.”

FPSO is the acronym for Floating Production, Storage and Offloading vessels, giant ships that function as floating processing plants. ExxonMobil currently has two FPSOs in operation today, with another anticipated before the end of 2023. Current plans anticipate a total of six FPSOs to be in place and operating by 2027.

Production from Stabroek exceeded 400,000 barrels of oil per day by mid-2023, and is expected to rise to over 1 million bpd by 2027. Assuming it prevails in its territorial controversy with Venezuela, that level of production would rank Guyana as one of the world’s 20 largest oil producing countries.

More at stake than economics

It is key to note that the Guyanese government is also using its share of the Stabroek resource to help lower its emissions profile. An important part of this is what it refers to as its Gas to Energy Project, in which it is using natural gas from Stabroek wells to cut its use of diesel and fuel oil in power generation, along with other applications.

The role of ExxonMobil and its consortium partners is to build a 200 km pipeline to bring the gas to an onshore interconnect point, along with the onshore extent of the pipeline and preparing the site for a planned natural gas power plant. The Guyanese government is in the process of awarding contracts for the construction of the power plant, along with other needed infrastructure.

“The project is going to plan,” Bishop says. “We’re making good progress for laying pipe onshore. We’re laying pipe offshore. We’ve prepared the ground where Guyana’s power plant is going to be and handed that back to government.” Once the power plant is up and running, Guyanese officials believe it will not only cut emissions, but also reduce consumers’ power bills by up to 50%.

The Bottom Line

Make no mistake, Stabroek is a long-term project. When asked how long the development phase of the resource would take, Bishop says the project “is still in its infancy. We’ve only been in production on the initial project for four years. When you think about it, a reservoir’s life is 20, 30, 40 years, we’re in the infancy of it. It doesn’t take an expert to say it will be a couple of decades.”

Bishop notes that the company’s primary license runs for 20 years, and at the end of that it provides for a 10-year extension assuming the operators are in good standing with the government. And it is reasonable to believe the consortium will discover additional resource plays in the coming years as it proceeds through the development process.

So, it is no wonder that the 30% piece of Stabroek is the central prize Chevron seeks to obtain through its Hess Corp. acquisition. It is, after all, one of the most massive prizes under development globally, a resource so immense it has reignited a territorial constroversy between neighboring countries.