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Guyana basin offers bigger profits due to low development costs
Hannam and Partners, a leading independent investment bank headquartered in London, recently prepared a report which compared the economics of Guyana’s Liza Phase One Project in the Stabroek Block with the Permian basin, which is arguably, the basin that has attracted the most capital in the last few years and should see the most growth in the near-term.
Liza Phase One offers more profits due to low development costs –Investment Bank
In its analysis, the bank found that Guyana offers a lower cost of development, higher financial returns and more rapid cash paybacks. It said that the reason for this is that the fiscal terms of the contacts are some of the best in the world and the reservoirs rank amongst the highest quality in the world too.
For its assessment, Hannam and Partners made reference to the statistics and graphs produced by Hess Corporation, an American oil giant with a 30 percent stake in the Stabroek block. With US$7/bbl development cost for Liza Phase One and a cash payback in three years at a US$50/bbl, Hess sees its opportunity in Guyana as one of the most attractive in the world today.
The chart attached to this newspaper article also compares two world-class investment opportunities, Liza Phase One and an illustrative 50,000 acre development in the Delaware Basin in the Permian.
The investment bank noted in its report that the assumptions are both developments to a gross production rate of 120,000 barrels of oil equivalent reserves and exclude acquisition costs. It was further noted that the Delaware Basin development assumptions are based upon 1,400 well locations, and US$7.5mm for drilling, completions and facilities costs.
The financial institution said that the results show a few interesting comparisons: initial investment to peak production for Liza will be around three years, versus Delaware, which is over 10 years. It was also found that Liza has better permeability than the Delaware basin and requires less production wells.
CONSIDERABLE PROGRESS
The development of Liza Phase One is making considerable progress. Company officials have since noted that development drilling began in May for the first of 17 wells planned for Phase One. This they said would lay the foundation for production startup in 2020.
ExxonMobil representatives also noted that in partnership with Hess Guyana Exploration Limited and CNOOC Nexen Petroleum Guyana Limited, they have so far discovered recoverable resources of more than 5.5 billion oil-equivalent barrels in the Stabroek Block.
Liza Phase One is expected to generate over $7 billion in royalty and profit oil revenues for Guyana over the life of the project. The project involves the conversion of an oil tanker into a floating, production, storage and offloading (FPSO) vessel named Liza Destiny, along with four undersea drill centers with 17 production wells. Construction of the FPSO and subsea equipment is under way in more than 12 countries.
Additionally, ExxonMobil officials have since said that Liza Destiny will have a production capacity of 120,000 barrels of oil per day.
A second FPSO with a capacity of 220,000 barrels per day is being planned as part of the Liza Phase Two development, and a third is under consideration for the Payara development. Together, ExxonMobil said that these three developments will produce more than 500,000 barrels of oil per day.
The Stabroek Block is 6.6 million acres (26,800 square kilometers). Esso Exploration and Production Guyana Limited is the main operator and holds 45 percent interest.
Hess Guyana Exploration Ltd. holds 30 percent interest and CNOOC Nexen Petroleum Guyana Limited holds 25 percent interest.
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