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Guyana: A peek into new discoveries and a field comparative analysis

03 December 2019 Siddhartha Sen

The Guyana basin is successfully positioning itself as one of the most exciting emerging, deepwater exploration basins around the world. Since 2015, ExxonMobil and its partners have made 14 discoveries, totaling more than 6 billion recoverable barrels of oil equivalent. The Liza field, the first discovery by ExxonMobil, is expected to start producing from 2020. Continuing the success story are recent discoveries by Tullow Oil and its partners in the Orinduik block. These discoveries are expected to have a significant impact on the lives of the people within the country. The country is planning for a competitive bidding round for exploration rights in 2020, opening the deepwater region to new players and more importantly, new investment dollars.

Multiple discoveries outside Stabroek Block
Exploration activity in Guyana has been concentrated in the Stabroek block with ExxonMobil and its partners discovering more than 6 billion barrels of oil from 14 fields. While ExxonMobil has had great exploration success in the region, another company along with its partners has recently been successful in their own, independent exploration activity as well. Tullow Oil, along with its partners, Eco Atlantic, Total and Qatar Petroleum, made the Jethro-Lobe and Joe discoveries in the Orinduik block in August/September of 2019. These discoveries are important for Guyana as they are the first outside of the Stabroek block, proving that the resource potential stretches beyond one field with more potential discoveries on the horizon. The discoveries offer operators portfolio diversity and attractive returns in a challenged oil price environment.

Guyana Basin
The Guyana Basin is located offshore north and northeast of Guyana and Suriname. It is bordered to the east by the Demerara Plateau. The Pomeroon High separates the Guyana Basin from the offshore portion of the East Venezuela Basin. Onshore, the Guyana Shield marks the west and the south limits of the basin. There are two sub-basins, the Bakhuis Horst and the Guyana Deep Sea Sub-Basin.

ExxonMobil and its partners have achieved deepwater exploration success in Guyana, reporting 14 discoveries in the Stabroek block. The fields discovered include Liza, Liza Deep, Ranger, Snoek, Hammerhead, Payara, Pacora, Pluma, Haimara, Longtail, Turbot, Tilapia, Yellowtail and Tripletail. Since 2015, 42 new-field wildcats have been drilled offshore in Guyana, from which 14 discoveries have been made in the Stabroek block. The most recent two, by Tullow Oil and its partners, the Jethro-Lobe and the Joe discoveries have been made in the Orinduik block. The recent discoveries could help in improving the interpretation of the Atlantic Margin play.

Jethro-Lobe and Joe Fields
The Jethro-Lobe and the Joe fields are located in the Orinduik block in Guyana's deepwater. The partners were awarded the exploration rights to the block in January 2016.

The high impact exploration well in Jethro-Lobe reached a total depth of 4,400 meters (14,436 feet) and targeted the high quality Lower Tertiary sandstone reservoir. The well is located in the northeast part of Orinduik and the stratigraphic trap could be considered analogous to the nearby Hammerhead discovery in Stabroek by ExxonMobil. The exploration well drilled in the Joe field is located in the western part of the Orinduik block and was drilled to a total depth of 2,175 meters (7,136 feet) and helped de-risk the western part of the block.

Development concept for Jethro-Lobe and Joe Fields
The operator in both fields, Tullow Oil has mentioned that the resources for the fields exceeded the pre-drill estimates. The Jethro-Lobe field could be developed in a single stage, using a stand-alone development concept. A floating production, storage and offloading (FPSO) could be the concept of choice for development, with excess capacity to incorporate future discoveries in the area. The field is expected to consist of slightly heavy oil and hence both water and gas injection wells are likely to be included in the development plan. The Joe field could be developed in a single stage as a subsea tie-back to the larger Jethro-Lobe field.

Production and Investment Outlook for the Jethro-Lobe and Joe Fields
Assuming that the operator Tullow Oil and its partners go ahead with the development of the fields in the Orinduik block, based on the reserves estimates total production from the two fields could peak at 13.2 million barrels a year and 8.4 million barrels a year for the Jethro-Lobe and the Joe field respectively. To develop this resource could entail investment of US$3 billion and US$760 million for the Jethro-Lobe and Joe fields respectively.

Benchmarking the future fields across the Stabroke and Orinduik blocks
Upon comparing the Net Present Value (NPV) at 10% discount and base case oil price of US$65/bbl, of all the fields in the Stabroek and Orinduik blocks, the fields in Stabroek currently showcase a higher NPV. The NPV for the Liza and Turbot fields lead in this metric with an IHS Markit valuation of US$17 billion and US$5 billion respectively.

When we compare the fields within these two blocks on an oil price breakeven metric, all the fields lie within a wide range of US$25/bbl to US$62.5/bbl. The breakeven price estimate using IHS Markit's valuation for the Liza field is US$26.78/bbl and for the next best, the Snoek field, is US$29.92/bbl.

The total capital investments for the development of the fields in the two blocks is expected to be close to US$63 billion over the life of the field as per IHS Markit valuation analysis. The majority of this investment is directed towards the Liza field, followed by Turbot, Ranger and Pluma.

All the fields that are expected to be developed and brought online within the Stabroek and the Orinduik blocks showcase a positive internal rate of return (IRR). The IRR for the fields ranges from 10% to 52%, with the Liza field leading on this parameter.

The after tax cashflow for the fields within these two blocks is expected to be positive, with a range between US$1.9 billion to US$59 billion. This is another indicator that the investments made in Guyana will lead to positive returns for the operator and all the partners involved in the development of these assets.


Figure 1:Successful exploration activity in Guyana

Sensitivity Analysis
The financial implication of oil price changes on these assets in Guyana is significant. While a base case oil price of US$65/bbl has the NPV of the Liza field at approximately US$17 billion, a high price scenario, assuming oil price to be US$80/bbl, would increase the valuation of the Liza field to US$23 billion, an upward swing of US$6 billion, as per IHS Markit valuation analysis. Similarly, a low-price scenario, assuming oil price to be US$50/bbl, would bring down the valuation of the Liza asset to US$10.6 billion, a reduction of close to US$7 billon. This analysis highlights the significance and the important role that oil price stability will play in the development of these fields in Guyana over the long time period.

Conclusion
Guyana is expected to remain in a good position to drive future hydrocarbon production while continuing to attract foreign investments. The country has experienced consistent exploration success, and this has helped reinforce it as an emerging hydrocarbon producer. Recent discoveries, such as Jethro-Lobe and Joe have been helpful in de-risking multiple prospects and could lead to further upsides. The country is expected to adjust its fiscal terms for future contracts to better reflect the de-risking of the country's subsurface. Guyana's department of Energy has stated plans to award unlicensed areas via competitive bidding in early 2020. This could be delayed by a few months considering the time to prepare for a bid round. Ultimately, the competitive auction is expected to provide an opportunity for new entrants to enter one of the world's most prolific deepwater exploration areas.

Gain additional insight into offshore basins, licensing rounds, exploration history and more with Upstream Intelligence Solutions from IHS Markit.

Siddhartha Sen is a Director, Energy Research & Analysis at IHS Markit.

Posted 03 December 2019


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