June 30, 2016
Today ExxonMobil XOM +0.61% announced a big find at its new well offshore Guyana, called Liza-2. It builds on the success of 2015’s Liza-1. At Exxon’s recent annual meeting, CEO Rex Tillerson declared that first Liza to be the world’s biggest discovery of 2015. Together, the Lizas’ high-porosity sandstone reservoirs could hold more than 1.4 billion recoverable barrels of high-quality oil.
The virtually unexplored waters of Guyana — the former British colony east of Venezuela — are fast becoming a hotspot of global oil exploration. And Exxon is going big, having expanded its position to 8.1 million gross acres. “To put this in perspective, this is the equivalent of 1,400 Gulf of Mexico blocks,” Tillerson said. Exxon says the 3-D seismic survey that it conducted on the lease was the biggest in company history.
Exxon has 45% of the Liza prospect. Hess HES +0.34% Corp. has 30% and China’s Cnooc-Nexen NXY +% 25%. If Liza is a big deal for Exxon, it’s a bigger deal for smaller Hess. In a statement, CEO John Hess called it an “exciting prospect” and “world-class” with additional wells planned for the drillship Stena Carron. That vessel stabilized itself in waters 5,600 feet deep while drilling down 18,000 feet into Liza. The rig is starting a new well 25 miles to the northwest.
Hess is also partnered with Chevron CVX +1.01% and Kosmos Energy in a nearby block. While Tullow Oil is planning its own seismic survey on the Orinduik block, just “up-dip” from Liza (i.e. more likely to be “gassy” than “oily”). Kosmos and Tullow have both enjoyed sizable success on the other side of the Atlantic, having discovered the 3 billion barrel Jubilee fieldoffshore Ghana. Geologists think that the geology under the western atlantic is a mirror image of what they’ve found on over on the African side.
This was an interesting bit from an insightful report published by BMI Research, a FitchGroup Company, May 11, 2016.
“We believe Kosmos will maintain its strong focus on offshore exploration in the Atlantic margin, benefiting Suriname’s prospects. Having drilled five consecutive successful deepwater discovery wells off of the western coast of Africa, most recently at its Teranga-1 exploration well in Senegal, we believe the company is well positioned to explore its South American acreage. Their success in Sub-Saharan Africa will encourage upstream investment in Suriname given the implied geologic relationship between the two regions.”
The Liza-2 well reportedly included an extensive drill stem test, whereby Exxon would give the reservoir a full proctological exam in order to fully determine the nature of the the reservoir.
Exxon has been careful not to unbridle its enthusiasm for Guyana, where Prime Minister Moses Nagamootoo hosted president of ExxonMobil Development Company Steve Greenlee earlier this year.
Watch analyst Doug Leggate try to squeeze additional info from Jeff Woodbury, v.p. of investor relations, on Exxon’s recent quarterly call.
DOUG LEGGATE, oil analyst, B. of A.-Merrill Lynch: Right, right. Jeff, my follow-up and I’m going to have a stab at this one. It might be a very short answer, but on Guyana, I’m going to frame my question like this. My understanding is that the appraisal well is something of a two-stage effort, stage one being pre before the drill stem test, and I’m just curious the extent you can share with us whether that well has achieved its objectives and the additional plans perhaps to being a second rig and any comments on additional prospects that have been identified at this point. I realize it’s early but just looking for any update you can share on that objective.
JEFF WOODBURY, v.p. investor relations: Sure Doug, and I understand the interest that you and others have about Guyana. I mean, we were certainly very encouraged by the discovery well. The organization moved quickly to get a drill ship contracted and get it on site to appraise the Liza discovery. The well spud in February we do plan to drill multiple wells this year. Liza 2 is progressing according to expectations. We will plan to test the well, and we should complete that activity mid-year. As I said in my prepared comments, we did complete the 3D seismic survey on the Stabroek block, and we began a survey on the Canje block which we picked up to the east of the Stabroek block. The well and seismic data is being assessed realtime in order to provide insights into the discovery and the ultimate block potential. We do plan on moving the rig from the Liza appraisal well over to a new prospect to the northwest after it is done at Liza.
Another winner, if all goes well could be SBM Offshore , which has been “prequalified” by ExxonMobil to build an FPSO (floating production, storage and offloading vessel) for Liza.
CEO Bruno Chabas has been pushing the Amsterdam-listed SMB to perfect a standardized approach to building these multi-billion-dollar vessels.
That could help keep costs down for Exxon, which might need to order 3 FPSOs to handle all that Guyanese oil — and would prefer to lock in today’s low prices. Analyst John Herrlin tried to coax a response on that one on the last analyst call.
JOHN HERRLIN, ANALYST, SOCIETE GENERALE: Yes, thank you. Just a quick one for me, Jeff, on Guyana. You have multiple structures in your lease area. In the event that you have multiple successes should we consider Guyana to be kind of an analog to what you did in Kizomba [in Angola] a while back in terms of design one, build many. And then my other question is can you bring some of these longer cycle projects forward to take advantage of excess E&C capacity today? You did discuss kind of how you’re optimizing things. Can you bring longer cycle programs forward to take advantage of a lower cost environment?
JEFF WOODBURY: Yes, yes, on Guyana, John, and good morning, John. I’d tell you that, as I — as I indicated earlier, it is really early days. We need to get a better handle of the full block potential.
Indications are the the full potential could be very big. It’s a shot in the arm for Exxon, which hasn’t been particularly great at replacing the oil and gas it produces. 2015 marked the first year in two decades that Exxon failed to prove up enough new reserves to replace those pulled out of the ground, for a reserve replacement ratio of 67%. That said, reserve replacement needn’t be a huge concern; Exxon’s portfolio of proved, probable and possible resources now totals 90 billion barrels.