A point of view on Guyana’s oil

Nov 02, 2019 Letters

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DEAR EDITOR,

In the recent days, I read an article posted on Kaieteur News. I would like to express my point of view [https://www.kaieteurnewsonline.com/2019/10/28/approval-of-oil-field-development-plans-gives-guyana-room-to-reclaim-lost-value-tt-expert-anthony-paul/], regarding some of the elements expressed within.
Under the Guyana point of view, although necessary, the least of the concerns are the local salaries and the local industry development. In the first place, salaries are insignificant in the whole financial structure, while local industries will take time to reach the require standards to be able to significantly take advantage of the offshore development within the expected time frame. The key issue is to ensure the right financial variables for the project at front, and to ensure sustainability of the project beyond the break-even point.
Realistically speaking the whole FDP plan makes monetisation of Guyana’s proven oil and gas reserves most likely beyond the 5 to 10 year window; definitively not for the short term. The offshore Stabroek project has lots of intangibles which could easily turn the NPV profile into read, plus the economics have lots of assumptions with not firm technical basis to support it. The real facts will be seen during the appraisal and development phase.
Much more important than reviewing the FDP is to closely monitor its implementation, both operationally and financially. Without accounting for the operational and inherent asset deliverability challenges, “Stabroek” is an important green field area costly to develop. Liza and Payara reservoirs are located to a depth of over 17.500ft (>5,300+mts) deep, in a 6,570+ft (2.000+mts) water column. Discovery wells for both prospects targeted similar reservoirs, the most prolific belonging to the middle to upper Cretaceous. Some of these formations comprise poorly consolidated sandstones, dolomitic sandstones, and naturally fractured limestone/dolomitic formations. It has also been confirmed that discovery wells have significant free-gas volumes, possibly over 2 trillion cubic feet, as well as intrinsic early sand production problems; very similar to those experienced in offshore CIGMA project, Venezuela. These observations pose critical elements to the whole development that must be carefully managed.
To drill and complete an offshore >17.500ft deep well requires at least 120 days and around $65 to @85 million (although it may very well surpass the $100 million mark), without accounting for the implicit impact of the required initial learning curve. Looking at the numbers, in situ reserves will be depleted at 4% acceleration during phase I, and 6% during phase II, considering the upper bound for the recoverable reserves of 1.200 MMBOE (Full scope: Liza asset), compared against 10% to 16% for the lower end reserves scenario (450 MMBOE). Both Liza and Payara are light to retrograde gas condensate bearing assets. Assuming as accurate that initial pressure conditions places the main pool at/or below saturation, further complications should be expected, all leading to added costs (gas flaring, fluid disposal, etc) and accelerated productivity decay.
As per confirmed information, both Liza and Payara reservoirs are preferentially volumetric, meaning they have little or not additional-significant pressure support besides fluid & rock expansion. Accelerating these assets at such rate of over 4%; and even more 16%, will ensure a very short live expectancy under primary production, reducing reserves expectation (in situ trapping), and demanding additional pressure support from project inception (assisted/EOR/IOR, recycling, etc), further increasing unit costs. At required flowrates of 7.000 B/D/Well during initial production, superficial and interstitial supersonic “erosional” velocities, particularly for the upper gas phase, will force operations towards high OPEX intensive, to be able to reduce (not avoid) critical exposure. Additionally, in spite of well architecture and type of completion; i.e.: vertical, highly inclined or multilateral, supersonic velocities and “erosional” forces will reduce well life expectancy even with costly and specific metal alloy grades. Irrespective of borehole completion scheme, it will also consistently and gradually destabilize near wellbore region, leading to borehole collapsing adversely impacting flow properties, well deliverability, and ultimately reducing both, overall production and margins. The intention of this email is to strengthen the need to proper and closely follow up, to ensure maximum return for the people of Guyana.

Best Regards,
Millan Arcia Einstein

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