August 4, 2020 – Georgetown, Guyana – The ‘Oil & Energy News’ website OilPrice has recently published an article praising the economics of the Stabroek block, and a press release indicating a favourable outlook for Guyana’s future as an oil producing country. Key points follow, with a comment from TOTALTEC CEO Lars Mangal.
The oil industry has faced unprecedented challenges over the past year. In March 2020, the Russia-Saudi economic conflict worsened as Saudi Arabia initiated a price war, facilitating a quarterly price fall of 65%. In the first few weeks of March, US oil prices fell by 34%.
The context of the Russia-Saudi price war originates in 2014, when US shale oil production came online and significantly increased US market share, causing a price crash from $114 per barrel (in 2014) to just under $27 per barrel in 2016.
As a result of this, OPEC expanded membership temporarily, and in September 2016 Saudi and Russia agreed to cooperate in managing the price of oil, cutting production by 2.1 million barrels per day. In 2020, the global COVID-19 pandemic began, causing a sharp decline in demand, with a resulting fall in oil price. In response to this new market turbulence, OPEC met on the 5th of May, agreeing to further production cuts. Shortly after, Russia rejected OPEC’s demand to cut production, causing oil prices to drop a further 10% and starting the price war that is only beginning to abate today.
The price war and global pandemic was a ‘Double Black Swan’ event, and in May 2020 – for the first time since records began – oil prices went negative.
In all of this, ExxonMobil continues to develop the Stabroek block offshore Guyana, with more evaluation wells being drilled, and the current Liza-1 development now in production.
There are many oil producing countries in the world who did not have the time to recover from the 2014-2016 oil collapse. Canada, exporting heavy oil out of oil sands, has a breakeven cost in the range of $75-85 per barrel. With global oil prices at around $40 at time of writing, Canada’s oil sands remain unprofitable. On the other side of the scale is Saudi, another oil producing country with the lowest lifting costs globally. Saudi Aramco has lifting costs as low as $2.80 per barrel.
Into this global mix enters Guyana, with another ground-breaking discovery by ExxonMobil in February 2020 causing estimates for recoverable reserves to increase to 8 billion barrels. This places Guyana squarely in the center of the list of top-20 countries globally by reserves. The IMF forecast Guyana’s GDP to increase 53% in 2020 alone. To put this into perspective, the rest of Latin America is forecast to experience a shrink in GDP of 9.4% in 2020. Unimaginable wealth is expected to transform Guyana, with many oil companies rushing to win offshore contracts.
‘As articles like this show, the scale of resource and favorable economics of Guyana have placed it front and center on the energy global stage.’ said TOTALTEC CEO Lars Mangal. He continued ‘Following the dual events of Saudi-Russia market share protection and COVID-19, combined with an increased emphasis on carbon neutrality, we must develop a flexible strategy for our energy future, funded by accelerating the development of new fields.’
Lifting costs in Guyana are predicted to hover under $40 per barrel. This is remarkably low for deepwater fields. Earlier this year, industry consultants Wood Mackenzie issued a report pointing to a $30 per barrel breakeven price for the Stabroek block. This makes Guyana a very attractive long-term investment prospect.
It also makes the development offshore Guyana extremely resilient to a difficult operating environment, and limits the impact of price and market fluctuations.
That Guyana has a bright economic outlook and future ahead is indisputable. The challenge today is to focus on the development of a sustainable energy mix, with a stronger focus on carbon neutrality and a flexible future strategy designed to protect and enhance the lives of Guyanese long into the future.
Read the full OilPrice article here:
TOTALTEC Oilfield Services is focused on the success of the oil industry in Guyana for the benefit the country, its people, and partner companies. It does this through three areas: people, partnerships, and facilities. Qualified and motivated Guyanese develop through the International Petroleum & Maritime Academy. Partnerships prioritize products and services that are starting points to grow from, creating new Guyanese led companies. Examples are Guyana Shore Base, Inc. providing support to offshore operations and Jaguar Oilfield Services offering a complete range of lifting equipment and inspection services. The 94% Guyanese TOTALTEC workforce includes 8 nationalities with over 160 years of international oilfield experience.https://www.totaltec-os.com