Controversial flaring from the Liza-1 oil well will likely continue until the end of this year as Hess – one of the partners in the offshore operations – announced that Guyana’s maximum 120,000 barrels per day production output will not be achieved until December.
Problems with the commissioning system on the Liza Destiny Floating, Production, Storage and Offloading (FPSO) platform continue even as the company also confirmed potential for some 10 FPSOs in the Stabroek Block area, for which it has upped recoverable resources to approximately 9B barrels with appraisals for some wells still to be completed and exploration continuing.
“In the third quarter, gross production from Liza Phase 1 averaged 63,000 barrels of oil per day or 19,000 barrels of oil per day net to Hess. Ongoing work to complete commissioning of the natural gas injection system continues, and once complete will enable the Liza Destiny floating production, storage and offloading vessel or FPSO to reach its nameplate capacity of 120,000 gross barrels of oil per day in December,” Hess’ Chief Operations Officer Greg Hill told the company’s third quarter earnings call this week.
The company’s Chief Executive Officer, John Hess, its Vice President (IR) Jay Wilson, Hill and Chief Financial Officer John Rielly facilitated the conference.
Production over the past few weeks here was about 105,000 barrels per day, Hill said.
Since its production startup in December of last year, ExxonMobil has flared over 10.6 billion cubic feet of gas and has not told this country definitively when it will cease, only that it was working to “soon” resolve the problem.
According to Hill, the current production output is due to continuing problems with the FPSO’s gas injection system and not with the reservoir capacities.
“It is important to note that the delays in commissioning the gas injection system are mechanical in nature, and the reservoirs and wells continue to deliver at, or above, expectation,” he said.
The company assured that the problems with the designing of the FPSO’s systems were being fixed for future FPSOs so as not to have a repeat.
And while COVID 19 has impacted work to some degree, Hill explained that the company’s ability to reach the 120,000 barrels full production capacity or plateau, promised first in August but now changed to December, was because of design issues and not attributed to restrictions of social distancing or labour availability.
“Obviously, it impacted repairs,” the Chief Executive Officer said.
Hill would expound saying. “Yes. No, I think it’s on the margins, I would say, I mean, really the design issues that I talked about, were the primary reason. However, … Exxon has very strict protocols, which I think, are absolutely appropriate. So anyone before they go offshore has to self-quarantine in country for 14 days and be tested.”
Potential 10 FPSOs
And noted at the conference call was that 10 FPSOs could be working simultaneously offshore in the future as the company announced recoverable resources at about 9B barrels. This confirms projections by Rystad Energy which said that given the current trends, this country should prepare for the large production activity offshore.
“Incorporating the current assessment of additional volumes from the Redtail, Yellowtail-2 and Urau discoveries, we are increasing the estimate of gross discovered recoverable resources for the Stabroek Block to approximately nine billion barrels of oil equivalent,” Hess said.
He also said that the company was “giving some guidance now of increasing our resource estimate in Guyana, and Stabroek Block to approximately 9 billion barrels of oil equivalent with a potential for 10 ships, not just five ships.”
‘Competitive cost recovery’
And the controversial 2016 Production Sharing Agreement (PSA) terms concluded with the former APNU+AFC government were played up by the company.
“I think that it is important to remind you of what makes the Stabroek Block so unique. First, its size and scale. The block is 6.6 million acres, which is equivalent in size to 1,150 Gulf of Mexico blocks. So far, we have drilled 20 prospects and have made 18 discoveries that contain approximately 9 billion barrels of recoverable oil and gas resources, with multi billion barrels of exploration potential remaining. Secondly, world-class reservoir quality with exceptional permeability and porosity that results in high flow rate wells and high recovery factors. Third, the reservoirs are shallow and there is no salt that allows us to drill wells in a fraction of the time and cost of other deep-water basins,” Hess said.
“Fourth, there is a Production Sharing Contract with a competitive cost recovery mechanism. Fifth, development is occurring at the bottom of the offshore cost cycle. Excess capacity throughout the offshore supply chain greatly reduces the risk of project delays and cost overruns. Sixth, ExxonMobil is arguably the best project manager in the world for this type of development and their operatorship greatly reduces execution risk. And finally, its low cost of supply, the first three developments have industry leading Brent breakeven prices of between $25 and $35 per barrel. For all these reasons, Guyana will create extraordinary long-term value for our shareholders and for the citizens of Guyana,” he added.
Tanager-1
In giving an update on works done here, Hess said that in terms of exploration, the Stena Carron drillship is drilling the Tanager-1 well on the Kaieteur Block, approximately 46 miles northwest of Liza. “This well, which is the deepest well drilled offshore Guyana, is designed to penetrate multiple geologic intervals, including the Campanian, Santonian, and Turonian.”
The next exploration well on the Stabroek Block will be Hassa-1, which will target Campanian aged reservoirs approximately 30 miles east of the Liza Field. This well should spud near the end of 2020 and the company expects results during the first quarter of next year.
In terms of preserving the long-term value of its assets, Hess said that Guyana, with its low cost of supply and industry leading financial returns, remains its top priority.
The company said that it was pleased when on September 30th, the Government of Guyana approved the development plan for the Payara Field, the third oil development on the Stabroek Block, where Hess has a 30% interest and ExxonMobil is operator.
Payara is targeted for first oil in 2024, and the companies expect to have at least five FPSOs on the block producing more than 750,000 gross barrels of oil per day by 2026. The three sanctioned oil developments; Liza-1, which is producing, and Liza-2 and Payara, which are under construction, have breakeven Brent oil prices of between $25 and $35 per barrel, which are world class by any measure.
Of significance was that Hess sees potential for up to 10 FPSOs to develop the current discovered recoverable resource base and will channel its resources to maximizing returns from operations here.
“We announced on October 5th an agreement to sell our 28% working interest in the Shenzi Field in the deep-water Gulf of Mexico to BHP Billiton, the field’s operator, for a total consideration of $505 million at an effective date of July 1st, 2020.This transaction brings value forward in the low price environment and further strengthens our cash and liquidity position until the Liza Phase 2 development in Guyana comes online in early 2022,” he said.
The proceeds from the Shenzi sale will allow the company to fund its “Guyana investment programme in a $40 oil price environment through the startup of Liza Phase 2 with cash flow from operations and cash on hand.”
As Liza Phase 2 comes online, Hess said that its operations in here will begin to generate free cash flow for the corporation, even in a $40 oil price environment and depending on commodity prices at that time, “the corporation will begin generating free cash flow between 2022 and 2024. As we generate free cash flow, we plan to first reduce debt and then increase returns to shareholders.”
