With roughly less than nine months to go until first oil, there is great anticipation of the positive impact that oil revenues would potentially have on Guyana’s economic development.
The 13 discoveries made by ExxonMobil thus far do not only bode well for the small South American nation, but also for ExxonMobil, the company that commenced exploration in Guyana at a time when it seemed like making a discovery would be a long-shot.
OilNOW sat down with Geoscience Upstream Manager at ExxonMobil Guyana, Mr. Doug McGehee, who reflected on the risks involved in the company taking the dive into exploration activities offshore Guyana, even after its partner Shell, abandoned operations in the new oil frontier.
McGehee, who has a degree in geophysics and a Master’s in Business Administration has worked with ExxonMobil for the past 38 years.
“I’ve been in exploration, development, production, planning…so, I have had the opportunity to see a lot of different things really. It’s been a great three years in Guyana. We’ve been on a pretty successful run, the most successful I have seen,” he stated.
While their success is being praised, McGehee explained that it was not guaranteed, as Guyana is a frontier area.
Guyana, unlike other countries such as Brazil, did not have an established petroleum system. “In Brazil, they had…they have now… a proven petroleum system. They’ve been producing oil a long time, they have a mature oil and gas industry,” McGehee reminded.
“In a frontier area, there is not an established petroleum system. In order to have a successful petroleum system, you need seven things. You need source rock, which means its rock that has organic material in it so that can become hydrocarbons…plants and animals basically,” he noted.
He continued, “It needs to be matured, so it needs to be buried deep enough, long enough and get hot enough to actually generate hydrocarbons from it. Then, if you have those two things you still don’t have an active petroleum system. You need a reservoir. So, you need a rock that has pore space that allows the oil to go into the pore space of the rocks. Then, you need a trap and a seal. It doesn’t do any good for that reservoir if that oil just flows through that reservoir and never trap it anywhere and shows up as a seep somewhere.”
The Geoscience Upstream Manager shared that “the sixth element is the oil needs to leave the source rock” while the final element is timing, saying, “Your reservoir and trap have to be in place before the oil migrates. So, all seven of those things have to come together. So, when we talk about a frontier area, it’s an area where those things have not been proven.”
Prior to the company drilling the Liza-1 well, a number of other companies had unsuccessfully conducted exploration activities. Before ExxonMobil drilled the Liza 1 prospect, there were already 40 dry holes from exploration conducted by other companies. A dry hole is a well that is drilled but does not yield commercial quantities of oil.
“Mid 90’s to late 90’s, ExxonMobil did a bunch of regional work and we kind of rethought how all the plate tectonics, how all that came together and how all these basins were formed,” McGehee divulged.
The Production Sharing Agreement with Guyana was signed in 1999. Further reflecting, he shared, “I think around 2000, there were some border issues with Suriname so we went into force majeure. I think that was resolved in 2007-2008. So, we started doing seismic exploration then we had to go through a couple relinquishments.”
The seismic data available was not very promising, but they went ahead with their exploration.
“We convinced ourselves there’s a source rock, so we convinced ourselves of at least three or four of those elements. We convinced ourselves there was a source rock, we convinced ourselves that it’s mature, that it was buried deep enough, long enough to produce hydrocarbons and that it can migrate. So, then we had to find the other four elements—the reservoir, the trap, the seal and the timing. Those were the unknowns,” he reminisced.
In May 2015, ExxonMobil announced its first discovery—800 million to 1.4 billion barrels of light crude at Liza 1.
The risk that they took came with a heavy price tag, and without this discovery the company would have faced heavy losses. “In a production sharing agreement, the contractor—us—takes all the risk. When I talk about risk, I’m not talking about safety risk, I’m talking about financial risks. So, we could invest millions to billions of dollars looking for oil and if we don’t find any, we don’t get anything back…that is money spent. So, that’s our financial risk,” McGehee stressed.
“We spend that money upfront, the Government does a Production Sharing Agreement and if we don’t find any oil or have a production development, we don’t get anything back. When I talk about geological risk, I call that uncertainty. Uncertainty because we don’t know what’s there and until you’ve found oil, you don’t know that you have a proven petroleum system,” he stated.
Asked about the initial cost of exploration when they first entered Guyana’s waters, McGhee shared that a seismic survey could run anywhere between US$10 to US$80 million.
Meanwhile, he went on to explain, “a deep-water well can run anywhere between US$50 to over US$200 million depending on the depth of the water, the complexity. It’s a significant amount of money. And don’t forget, the very first well—Liza 1, had a less than 20 percent chance of success. Four out of five we were not going to find any.”
In 2016, just prior to the renegotiation of the Petroleum Agreement with the Guyana Government, the company encountered a dry hole. This is after making just the first discovery at the Liza Field.
“We signed our Petroleum Agreement in 1999. When we renegotiated in 2016, we did not have to pay a bonus. We already had the block. We were just renegotiating to extend the exploration phase a little bit,” McGehee reminded.
“In our negotiation with the Government, they wanted some more. So, in addition to getting half of the profit oil which was part of the agreement to start with…they negotiated a 2 percent royalty on top of that and the 18 million signing bonus,” he added.
To date, the company estimates that is has found more than 5.5 billion barrels of oil so far at the Stabroek Block. There is potential for at least five Floating Production, Storage and Offloading (FPSO) vessels on the block which could produce more than 750,000 barrels of oil per day by 2025.
It is with this optimism that the company is gearing up for first oil at the Liza Phase 1 Development project. The Liza Destiny FPSO, which was recently commissioned by Guyana’s First Lady, Mrs. Sandra Granger, will soon set sail and is expected to arrive offshore the South American country in September.