In 2015 ExxonMobil struck oil in 2 out of 3 exploratory wells in Liza
prospect, offshore Guyana, Stabroek block. Appraisal work so far has placed Liza asset under an estimated of 450 MMBOE to 1.200 MMBOE range recoverable reserves. Although much smaller, later on during 2017 additional volume was found in the Payara prospect, propelling total reserves expectation towards 1.400 MMBOE. Not final decision for full blast independent development has been reached for this second prospect. So far, Guyana government claim a total of 13 new additions in total, including the latest Tilapia, Haimara, and Yellowtail prospects further south- southeast within the same Stabroek block. Promises forecasting production increase from Guyana offshore assets have been made since 2015, with the discovery of “Lisa and Payara” fields. The plan according to Guyanese authorities (not Exxon’s) comprises for Phase 1 Liza prospects, a 2020 yearend production of 120.000 B/D, with breakeven margin of $35 per barrel. For phase II, a peak production of 180.000 to 200.000 B/D has been sanctioned for 2022, with a $25 per barrel breakeven margin. Guyana still needs to draft a regulatory framework for hydrocarbon extraction, fiscal regimes, state participation, and environmental protection statutes, although initial information points towards a 50/50 operator to government scheme.
As per available information pipelines will be laid during Q2’2019. For
phase I, a vessel will be converted into a FPSO (FPSO: floating, production, storage and offloading facility) during Q3’2019, to support incoming production from a 17 production well drill center. For phase II, a 220 MBD FPSO it’s being considered, while a third one is still under consideration for the Payara field (unconfirmed). Facts: Realistically speaking the whole plan makes monetization 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 Staboreak 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. 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. Is 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 beyond doubt, a significant threat to offshore Guyana future development. There are sensitive environmental challenges, operational complexities, and concerning potential reservoir complexities. Betting on a successful outlook in the current stage, could on the contrary lead to a financial bloodshed. Surprisingly, in the official statement of the first successful well, “ExxonMobil gave no official estimate of well’s initial production potential”. Only Raphael Trotman, Guyana’s minister of governance did. 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. For phase I, a 17 well drill center with concurrent operations, and considering only a 3% decline rate per year, will be in theory able to boost production to the 120.000 B/D target, assuming 100% efficiency, zero operational problems/delay, and a 7.000 B/D per well rate, which in essence seems unsustainable and unrealistic in practice. For phase II, some 30 wells will be needed, including 15 injectors. 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 Ugly Truth: ExxonMobil own economic analysis considers a capital investment of $US4.5 (could expand to $6 blns), oil price of $US50 per barrel, gas price of $US2.50 per MMBTU for a twenty five year window, for a total revenue to Guyana expected at $US8.9 billion, with paid back time for Guyana’s share of the development cost within six years of commencement of production of the Liza field. Several weaknesses can be unveiled. Basis for this estimate is an unrealistic-eight-years-sustained a 100.000- 120.000 B/D primary production plateau in a volumetric and saturated reservoir. ExxonMobil will have to be able to sustain the initial plateau for 8 years, which once again is improbable under the given development scenario for this type asset. Most likely, target production acceleration will demand additional producers than initially thought, peak production will be shorter than expected, OPEX will be much higher than initially considered, and operational drawbacks will increase sharply with time.
Surprisingly operators envisage pressure support initiation once phase II
is up and running, after 2 years of project inception by 2022. Dynamic model suggests, pressure will decline sharply from day one, loosing about (-25%) of its initial level of 8.500 psi within the first 8 years of production, to fall even further to 3500 psi (-60%) within the next 4 years, raising questions about the real integrity of both; phase I and II. The truth is that ExxonMobil has been facing serious operational and financial problems. During 2018 did not even qualify within the top 10 global corporations in terms of gross/net profit, even less in terms of reserves. Their shale oil assets are consistently plummeting, demanding heavy OPEX. Marginal costs are considerable and flow rate per well continue to show a drastic initial decayof over 45% to 65%. Stock value (XOX) has been falling heavily since early 2015, from more than $110 per share to less than $60 per share, translating into a sizable lost of over 45% in real value. Despite the massive “PR” about the offshore Guyana discoveries, no market value has been capitalized since the first report in 2015. On the contrary, ExxonMobil has continued loosing capital and value in the markets consistently. Regardless of the claim of 13 new prospects in total, including the latest Tilapia, Haimara, and Yellowtail, in reality these are small offshore pockets of hydrocarbon, which require large capital investments and high risks to develop. Because these pockets are small and mostly isolated among them, capitalizing on neighboring infrastructure is often prohibitive for large distances as it seems to be the case, considering that Payara field is located some 10 miles from Liza field, while the remaining prospects remain much further apart (>25 @ >100 miles S-SE). For the specific case of PDVSA offshore CIGMA and Deltana projects, this represents a clear opportunity to capitalize on its own strengths. These assets have multiple advantages including larger in situ reserves, shallower subsurface targets, among many others which definitively could translate into opportunities to capture multiple investments, under a more convenient business approach and a more reliable political environment than the preexisting ones. Millan Arcia Einstein: Senior Upstream Adviser and SME. Has published over 11 highly specialized technical papers internationally, and more than 200 energy related articles in a number of journals, blogs and newspapers. Has been quoted in Aporrea.org, NoticiasVenezuela.org, Plattsblog, Platts, Las Armas de Coronel, The Slush Pit (Oklahoma Oil & Gas News), Energy Economist, and Los Angeles Times, among others. E-mail: emillan7@hotmail.com Twitter: @EinsteinMillan