The growing Turbot area offers significant development potential
Last Month we announced that ExxonMobil had made two additional discoveries offshore Guyana at the Tilapia-1 and Haimara-1 wells, bringing the total number of discoveries on the Stabroek Block to 12.
There is now potential for at least five floating, production storage and offloading vessels (FPSO) on the Stabroek Block producing more than 750,000 barrels of oil per day by 2025. The Liza Phase 1 development is progressing on schedule and is expected to begin producing up to 120,000 barrels of oil per day in early 2020, utilizing the Liza Destiny FPSO.
The Noble Tom Madden drillship began drilling the Tilapia-1 well on Jan. 7 and will next drill the Yellowtail-1 well, approx. 6 miles (10 kms) west of Tilapia-1 in the Turbot area.
‘We see a lot of development potential in the Turbot area and continue to prioritize exploration of high-potential prospects here,’ said Steve Greenlee, president of ExxonMobil Exploration Company. ‘We expect this area to progress to a major development hub providing substantial value to Guyana, our partners and ExxonMobil.’
The other discovery was at the Haimara-1 well, which encountered approx. 207 feet (63 meters) of high-quality, gas-condensate bearing sandstone reservoir. The well was drilled to a depth of 18,289 feet (5,575 meters) in 4,590 feet (1,399 meters) of water. It is located approx. 19 miles (31 kms) east of the Pluma-1 discovery and is a potential new area for development. The Stena Carron drillship (see photo) began drilling the well on Jan. 3 and will next return to the Longtail discovery to complete a well test.
Stabroek Block offshore Guyana
Liza Phase 2 is expected to startup by mid-2022. Pending government and regulatory approvals, sanctioning is expected in the first quarter of 2019 for the project, which will use a second FPSO designed to produce up to 220,000 barrels per day. Sanctioning of a third development, Payara, is also expected in 2019, and startup is expected as early as 2023.
The Stabroek Block is 6.6 million acres (26,800 sq kms). ExxonMobil affiliate Esso Exploration and Production Guyana is operator and holds 45 percent interest in the Stabroek Block. Hess Guyana Exploration holds 30 percent interest and CNOOC Petroleum Guyana, a wholly-owned subsidiary of CNOOC Limited, holds 25 percent interest.
Tom Madden drillship. Photo: Noble.
The Tilapia prospect in the Stabroek Block was drilled by the Noble Tom Madden drillship. Photo: courtesy of Hess Corporation.
The Noble Tom Madden will sail 10km west of the Tilapia-1 well in the Turbot area to drill the Yellowtail-1 well.
The Haimara-1 well is located nearly 31km east of the Pluma-1 well and is looked upon by the partners as a potential new area for development.
The Stena Carron drillship, which drilled the Haimara prospect, will sail back to the Longtail discovery to wrap up a well test.
The Stabroek block with an area of 26,806 km2 located about 120 miles offshore Georgetown, Guyana, can be classified as one of the most prolific offshore oil potentials in South America.
It is a relatively recent province which started in May 2015 when ExxonMobil announced it made a significant oil discovery with the Liza-1 exploration well on the Stabroek block about 120 mi (193 km) offshore in the Guyana-Suriname basin. It encountered more than 295 ft (90 m) of high-quality oil-bearing sandstone reservoirs. The Transocean drillship Deepwater Champion drilled the well to an Upper Cretaceous fan play at 17,825 ft (5,433 m) in 5,719 ft (1,743 m) of water.
The operator of the block is Esso Exploration & Production Guyana Ltd., a subsidiary of Exxon Mobil (XOM) who owns 45% working interest. Its two partners are Hess Guyana Exploration Ltd. who is a subsidiary of Hess Corp. (HES) with 30% working interest and CNOOC Nexen Petroleum Guyana Ltd. with a 25% working interest.
FPSO Liza Destiny to sail away this summer
The floating production storage and offloading (FPSO) vessel Liza Destiny will set sail for the ExxonMobil-operated Stabroek block off Guyana in the summer of 2019.
Liza Destiny artist rendering; Source: ExxonMobil
Dutch FPSO giant SBM Offshore said in its 2018 full-year earnings report that the Liza Destiny FPSO construction was progressing well with sailaway from Keppel Shipyard in Singapore expected in a few months.
The FPSO project was going according to schedule and the last modules had been lifted on board. Commissioning activities are currently underway. The vessel, following the planned sail-away in the summer, would be installed offshore Guyana later in the year, in preparation for next year’s production startup at ExxonMobil’s Liza field.
In Guyana, SBM is working on operations readiness, setting up the shore base, and delivering on local content commitments.
ExxonMobil’s Liza field, where the FPSO will be deployed, lies in the giant Stabroek block, with acreage around 27,000 square kilometers, circa 200 kilometers offshore Guyana , a gift that keeps giving for ExxonMobil as the U.S. oil major made twelve discoveries on the Stabroek block with the latest two, Tilapia-1 and Haimara-1, striking oil.
ExxonMobil subsidiary Esso Exploration and Production Guyana Limited is the operator and holds 45 percent interest. Hess Guyana Exploration Ltd. holds 30 percent interest, and CNOOC Nexen Petroleum Guyana Limited holds the remaining 25 percent interest.
The FPSO will have a 120,000 barrels a day capacity, part of the first phase of the field’s development. A second FPSO with a capacity of 220,000 barrels per day is planned as part of the Liza Phase 2 development and a third is under consideration for the Payara development. The second phase FPSO contract is expected to be awarded to SBM Offshore, subject to an FID.
ExxonMobil applied for an environmental permit to develop the second phase of Liza with start-up expected by mid-2022. Exxon’s undertakings in Guyana have been good news for FPSO suppliers as the Stabroek Block might need as much as five FPSOs to develop the discovered oil. SBM Offshore felt positive signals from the industry, saying on it would order another FPSO hull on speculation. The company has already ordered two such units in the past two years, one of which is earmarked for Guyana.
ExxonMobil’s latest discoveries may be some of the largest to date – Westwood
In response to the new discoveries announced by ExxonMobil offshore Guyana,
Dr Keith Myers, President, Research at Westwood Global Energy Group, said:‘The two new discoveries announced in Guyana today could be some of the largest made to date. Tilapia is reported to have 93m of net oil pay, which is the highest reported so far in any exploration or appraisal well in the Stabroek licence. Haimara found gas condensate close to the Suriname border. This, together with the recent Pluma discovery, defines a gas prone area of the Liza fairway. Guyana now looks as though it could have a gas export business to add to its oil and Stabroek looks like it is one of the most prolific deep water blocks ever licensed.’
Click here for ExxonMobil announcement: ExxonMobil announces two new discoveries offshore Guyana
Source: Westwood Global Energy Group
HESS
Many investors have only a fragmented understanding of what is going on, and this article is meant to help to understand what are the future financial implications for Hess Corp. and Exxon Mobil who have invested a small fortune in exploration CapEx since 2015.
After Hess and Exxon announced their 10th discovery in the Stabroek block called the Pluma-1 well on December 3, 2018, the field is estimated holding now 5 billion barrels of oil and gas (reserve resources).
The company expects that it can install up to five production platforms in the block over the coming years with a total gross production of 750k Boe/d by 2025.
John B. Hess, the CEO, highlighted the weight of Guyana in the 4Q’18 conference call:
Through 2025, we plan to allocate about 75% of our capital expenditures to our Guyana and Bakken assets, two of the highest return investment opportunities in the industry. Second, we have built a focused portfolio with a combination of short-cycle and long-cycle investment opportunities with Guyana and Bakken as our growth engines and the deepwater Gulf of Mexico and the Gulf of Thailand is our cash engines.
Darren Woods, Chairman, and CEO of Exxon Mobil confirmed that the project is on track for an early 2020 start-up, in the 4Q’18 conference call
In Guyana, our track record of exploration success continued with five additional discoveries during the year resulting in an updated resource estimate of more than 5 billion oil equivalent barrels. With our success, we added another drillship to accelerate the pace of exploration and appraisal drilling. We now see the potential for at least five FPSOs producing more than 750,000 barrels per day by 2025…
Let me just add here too that we advance the FID at Payara in the middle of 2020 to late 2019, again reflecting the development plans and the progress that we’re making beyond the plans we laid out last year. Later this year we plan to mobilize the FPSO for the first development of phase in Guyana putting us on track for an early 2020 startup.
What is quite remarkable is that both companies focus primarily on the US Shale (Permian and Bakken), and offshore South America (Guyana and Brazil) to drive production growth for the next several years.
HES noted in its fourth quarter 2018 results, that 2019 CapEx will be around $2.9 billion on capital projects, which is a 40% increase from 2018.
The focus on Guyana which is not producing cash flow as opposed to the US shale has been a strong negative driver for the stock and prevented the company from generating positive cash flow.
A simple look at the historical Free Cash Flow since 2015 explains why this project could be so crucial for the stock in 2020 and why it is essential to keep HES on your list for a potential long-term investment.
Exploration Success – Comparison
An article of OffshoreEnergyToday direct to a study from Rystad which is quite striking. One simple graph is very telling about the oil exploration companies who were the most successful in 2018:
The three first are Exxon Mobil, Hess, and CNOOC which are partners in the Stabroek project. Erlingsen from Rystad said:
Top E&P companies registered many exploration successes in 2018, as majors and minnows alike made significant discoveries, but ExxonMobil was exceptional,
Conclusion And Technical Analysis
Hess Corp. and Exxon Mobil are not precisely in the same ball game as we speak, but we can draw some similarities anyway.
HES bounced back significantly since early January, so did Exxon Mobil but more timidly. HES and XOM seem to move within a descending channel patternwith no way to exit and no potential decisive breakout possible unless oil returns to the $80s per barrel.
The risks are geopolitical uncertainty and oil prices volatility that will continue to plague the world economy in 2019. Descending channels are short-term bearish, and the market may look at the stocks as an opportunity to sell on the good news.
Data by YCharts
Both companies need an active catalyst to move up significantly from here, and the opportunity will come next year with the massive potential of Guyana and its positive effects on the bottom line. Exploration CapEx will start to go down while production will be up. This simple model will generate more free cash flow and a better stock appreciation.
To just get a rough idea of what could be the impact in oil production for HES by 2025, let’s assume a gross output of 750K Bop/d. Hess Corp. owns 30% WI which is 225K net Bop/d.
Now, look at what the company is producing. It represents about 75% of what HES is producing globally and more than it will ever provide in the Bakken with a production of 200K Bop/d by 2021.
UN Resident Coordinator
United Nations Resident Coordinator Mikiko Tanaka asks the government to demonstrate its integrity and respect the constitution. Commenting on the no-confidence motion against the coalition government, the UN Coordinator said it was important for government to uphold the constitution. The Minister of State said that he did not understand the context of the statement of the UN official at an inter-faith consecration ceremony for the Region No. 3 Congress House at Vreed-en-Hoop.
“There is no evidence that we have not respected the constitution on the ruling. I thought that was a premature statement unless there is some evidence of it.. there is no basis for Tanaka’s statement, and .. it was not necessary… a statement that ..has no basis.. as a government we have always respected the constitution. We have always respected the law, so there was no need for a warning at this point ..”
On January 31 when a judge upheld a declaration by the Speaker of the National Assembly that the NCM was validly passed, the government said it respected the ruling, but disclosed its intention to appeal. “The ruling is not in favour of the government’s position with regard to the vote on December 21st, 2018; however, due process continues and the government will file an appeal in the Court of Appeal. The government continues to believe that the full adjudication of this issue is in the national interest.” Until the matter is concluded at the highest court of appeal – the Caribbean Court of Justice (CCJ) – the status quo remains and the business of government continues as usual. Government’s actions are aligned with the constitution. According to Article 106 (7) of the Constitution of Guyana, government, notwithstanding its defeat, shall remain in office until a new president is sworn in. Government has not erred, but has rather upheld the constitution. Government will continue to function effectively and without any hindrance.
“There is no restriction on the work of the government. There is no interim government, there is no caretaker government, the constitution speaks about a government and therefore the government shall function as it normally should.” President Granger will not step down until a new president is sworn-in. “We are a legal, legitimate government and nothing we have done so far is outside of the law; and as long as I am the President, nothing we will do will be outside of the law.”
The $300.7B National Budget will be rolled out, with all regions expected to see major transformational changes and developments.
Like the rest of petroliferous Caricom, Guyana will remain on the critical list, as the cost of the appeal sucks taxes and uncertainty reigns.