I wrote a few days ago about a new study from Rystad Energy which illustrates the scope and global importance of the development of the massive new oil resources discovered in recent years offshore the South American nation of Guyana. Rystad reports that Guyana is poised to become one of the four largest offshore oil provinces on Earth in the coming years, surpassing the offshore reserves and production levels of the US, Norway and Mexico in the process.
The growth of Guyanese production has been mainly driven by the development of the prolific Stabroek Block by a three-company consortium involving ExxonMobil
In an email, I asked Alistair Routledge, President and Lead Country Manager, ExxonMobil Guyana, to talk about the scope of up-front investments companies must undertake in mounting a new development in this kind of unproven offshore region, where drilling must take place in more than a mile of water depth before first production can ever take place. “You’re right — there’s a significant amount of up-front investment required before you can get to that first barrel of oil,” Routledge said. “For starters, you need to find it, which is why we’ve spent billions of dollars exploring, mapping, and understanding the basin.
“Once you find a commercially viable well, you need to invest in the right infrastructure to get the resource safely out of the ground and to market. Right now, we have two floating production, storage and offloading (FPSO) vessels operating offshore – at an estimated cost of more than $1.5 billion a piece; by the end of the decade, we envision up to 10 such production vessels operating offshore.”
By way of context, Routledge added “we’re investing $10 billion in the fourth project on the Stabroek block (Yellowtail); the Liza Phase 2 development was estimated at $6 billion.”
It is key to note that Exxon announced the first successful well at Stabroek – the Liza 1 discovery – in mid-2015, as ESG-focused investor groups like BlackRock and Vanguard were ramping up efforts to restrict access to capital for oil and gas projects just like this one. Thus, the high risk involved was exacerbated by the rising difficulties in accessing the capital needed to fund the venture.
Given that reality, it is notable that ExxonMobil and its partners continued to invest in developing this key new resource even during the depths of the COVID-19 pandemic in 2020, when other companies were pulling back on similar projects in other parts of the world. “During the pandemic, when others were scaling back, ExxonMobil Guyana and our co-venturers continued investing and developing the opportunity in Guyana, helping the country become an oil exporter in 2020 and contributing to the country’s economic growth,” he said.
Routledge also pointed out that Rystad is not the only authority that recognizes the importance of the Guyanese offshore to future global crude supplies. “The IMF and others project that Guyana will become one of the main contributors to oil supply growth outside OPEC by 2025. Since 2015, more than 11% of the conventional oil discovered in the world has been found here — and, keep in mind, many parts of the basin remain unexplored.”
Another piece of the Guyana puzzle that will require capital funding is the gas to energy project the consortium is mounting in cooperation with the Guyanese government. This will involve the construction of a major new natural gas pipeline to bring the production onshore, along with a processing plant and other infrastructure installation. I asked Routledge to comment on the status of that project
“We recently signed an agreement with the government to advance the Gas-to-Energy project and expect to make a Final Investment Decision (“FID”) with our co-venturers by the end of the year,” he said. “The Gas-to-Energy project will deliver more affordable, more reliable and cleaner energy to the people of Guyana, compared to the imported heavy fuel oil used to power most Guyanese homes and businesses today. It’s also expected to significantly reduce the cost of power generation in Guyana, primarily due to efficiencies in scale and the elimination of imported fuel costs.”
No energy-related project of this scope and scale can advance without controversies. One such controversy related to the Stabroek resource development has had to do with the provisions of the consortium’s revenue sharing agreement with the government of Guyana, which some critics within and outside Guyanese society think result in an inadequate share of the revenues flowing into the national treasury . I asked Routledge for his views on the matter.
“The terms of the Stabroek Block Petroleum Agreement are competitive with other agreements signed in countries at a similar resource-development phase,” he said. “The government of Guyana has publicly pushed back on criticism and contrary claims (and, as you previously reported, a Wood Mackenzie study confirmed the same). The Agreement provides a structure and terms that are equitable to both the government and investing companies, commensurate with the risk associated with each project.”
It is fair to add that Rystad Energy also concluded in its report that the terms of the revenue sharing agreement lie well within the norms of this type of contract in a global sense. Regardless, we can be sure opponents of the oil and gas development will continue to raise it in the future.
Noting that ExxonMobil’s Guyana operations are expected to have about 30% lower greenhouse gas emissions intensity than the average of the company’s upstream portfolio by 2027, Routledge added that “Current events show how important flexibility will be during the energy transition. We need two things at the same time: reduced emissions and a reliable source of energy. ExxonMobil has a role to play in both, and ExxonMobil is increasing production with some of the lowest associated emissions.”
Controversies and roadblocks to capital resources aside, what the consortium has delivered to Guyana is a world-class new resource asset with the potential to transform its society, and one that is well-positioned to be sustained through an energy transition. In light of steadily-rising demand for crude in the face of what has become a chronically-under-supplied market, it’s an asset that has great value to the world outside of Guyana as well.