Producing oil in Guyana cost less than almost anywhere else in the world and this makes the South American country an extremely attractive investment destination for deepwater explorers. Many factors play a role in the production cost for a barrel of oil and can be broken down into four major categories: capital expenditures, operational costs, administrative and transportation fees, and gross taxes.
Some parts of the world produce light and sweet crude while others produce oil that is heavy and sour. The result is price differentials for the varying oil blends throughout the world. On top of selling blends at a premium or discount to others based on quality, the cost to produce a barrel of oil varies widely across the world. This sets up winners and losers when the price of crude fluctuates to historically low levels, notes Oil & Gas 360® in a research paper.
Guyana, a newcomer to the oil and gas industry, is definitely a winner when it comes to breakeven prices. With approximately 9 billion barrels of oil equivalent (boe) and counting, the country is forging ahead as a major oil producer with experts saying it is on course to become one of the largest sources of non-OPEC oil supply in the coming years.
Demand for Guyana’s low-sulphur crude will grow in 2021, expert says
The South American country became an oil producer just a year ago with the start of production at the ExxonMobil-operated Stabroek block. Already, two other projects – Liza Phase 2 and Payara – are set to come on stream in 2022 and 2024 respectively, pushing production beyond 500,000 barrels per day (bpd). By the end of the decade, production is expected to surpass the 1 million barrels per day mark, placing Guyana among the top producers in the Latin America region.
The Liza Phase 1 development has a breakeven of around $35, Liza Phase 2 – $25 and Payara, the third offshore development – $32.
In neighbouring Brazil, fields in the Mero (Libra NW) project which each hold around 950 million boe of resources are estimated to have a breakeven oil price of just below $50 per barrel. Across the world, from Algeria to Uzbekistan, breakeven prices range from $87 to $48.
South American basin with abundant oil resources giving rise to fierce competition
“The first thing oil producers want to know when prices fall is which oil fields are still profitable,” states the Washington Post in a report. Profitability between oil fields varies a lot, it said, and depends on geology, local infrastructure, and political risks.
“The Guyana-Suriname basin is one of the [world’s] most attractive basins with a breakeven below $40/bl for the Guyanese fields and around $45/bl for the fields within Surinamese waters,” says Palzor Shenga, senior upstream analyst at consultancy group Rystad Energy. Shenga also believes that the breakeven price for Suriname will go down as more resource gets discovered and the country gets closer to development scenarios.
Rystad Energy research shows that the average breakeven price for all unsanctioned projects has dropped to around $50 per barrel, down around 10% over the last two years, and 35% since 2014.
In addition to low breakeven prices, Guyana deepwater has high quality crude and wells that are relatively shallow, which Hess, a 30% stakeholder in the prolific Stabroek block, says can be drilled faster than any other deepwater basin in the world.
“The reservoirs are relatively shallow with no salt, so wells can be drilled faster than other deepwater basins in the world,” says John Hess, CEO of Hess Corporation.
Dr. Pedro H. van Meurs, one of the world’s leading experts on upstream petroleum fiscal policy said in January Guyana’s fiscal terms “are just about perfect” right now because they encourage strong developments under low oil prices.
Lisa Viscidi, Director of the Inter-American Dialogue’s Energy, Climate Change and Extractive Industries program said in a podcast that the low breakeven cost to develop oil fields in Guyana could see other players losing market share to the new South American oil producer.
