The Guyana-Suriname Basin: An Emerging Petroleum Province

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Includes: BHP, CEO, CGXEF, CRNZF, CVX, E, ECAOF, EQNR, HES, KOS, PTREF, REPYF, TOT, TUWLF, XOM
by: Laurentian Research
Summary

A new petroleum province has emerged in the Guyana-Suriname Basin, thanks to Liza and other discoveries made by Exxon Mobil in the deepwater Stabroek Block.

The discoveries confirmed the petroleum systems and point to the direction for future exploration.

A pack of explorers rushed in to have a piece of the action because they realized that the basin, now much de-risked, has a lot more oil to be found.

How do we - the security investors - profit from such an oil rush?

The Guyana-Suriname Basin is the hottest offshore petroleum province now.

Once in a while, a new petroleum province appears in a previously under-explored frontier or blind spot, broadening the horizon of the explorers and security analysts alike, lending fresh hopes to both oilmen and the local economy, and offering new opportunities to the E&P industry as well as investors. Onshore, the shale play in the Permian Basin is one of such revolutionary new discoveries - perhaps a case of rejuvenation, to be exact. Offshore, such new frontiers were West Africa in the 2000s, East Africa in early 2010s, and Guyana in late 2010s.

In this article, let's have an in-depth look at the emerging Guyana-Suriname Basin, including its geology and resource potential, exploration history, discoveries made so far, to lay a foundation for future discussions on how we as security investors can profit from the rise of this frontier.

Geology and petroleum plays

The Guyana-Suriname Basin is a half-graben basin on the passive continental margin basin on the northeast coast of South America (Fig. 1).

Fig. 1. The Guyana-Suriname Basin geologic province, shown with the Cenomanian-Turonian total petroleum system. Source.

Tectonic history. The history of the basin can be traced back to the Jurassic time when the North Atlantic rift system progressed southward to the Central Atlantic region as ancient continent Laurasia parted ways with Gondwanaland. A rift graben formed along the coast of Suriname and Guyana during that time.

  • During the Early Cretaceous, the counter-clockwise rotation of Africa with respect to South America resulted in concomitant compression in northeastern South America as the South Atlantic Ocean opened. This convergence caused uplift of the Demerara and Guinea Plateaus, inversion of the Jurassic rift grabens, and peneplainization of the entire Guyana-Suriname Basin.
  • In Late Cretaceous, a second passive margin sequence developed along the Guyana-Suriname margin as the Atlantic Ocean finally opened up as Africa and South America drifted away from each other. The Guyana-Suriname margin has remained a passive margin since the Cretaceous, being filled with deltaic sedimentation (Fig. 2).
  • During the Miocene, as the Nazca Plate in the Pacific Ocean pushed into the underbelly of the South American continent, the lower tributaries of the Amazon River shifted to the south. Consequently, the Guyana-Suriname Basin received, in place of sandy sediments as previously, clay in deeper water and carbonates on the shelf.

Fig. 2. The formation of the Guyana-Surinam Basin as part of the tectonic movement of plates. Source.

Stratigraphy. The basal sequence includes the continental Barremian Stabroek Formation, the Aptian Potoco Carbonate, and the Canje Formation, a regionally deposited source rock.

Above the Berbice Unconformity, which shows rugged topography, is a sequence of sediments, i.e., the New Amsterdam Formation, which was deposited in the North Coroni basin-floor fan, shelf-margin deltas, and Berbice Canyon, and the carbonate-containing Georgetown and Pomeroon formations.

The Corentyne Formation of the mid–Miocene age overstepped the shelf edge as the clastic-dominated surge from the Andean uplift was deposited and continues into recent times (Fig. 3). Fig. 3. A schematic stratigraphy of the Guyana-Suriname Basin (lower right) and depositional environments (upper left). Source and source.

Petroleum systems. Over 150m thick Canje source beds had been brought to depths in excess of 6.5km to allow the source kitchen to reach maturity. A huge basin-floor fan complex, canyon feeder systems and carbonates in the New Amsterdam, Stabroek, and Georgetown formations are potential reservoir rocks (see here). Stratigraphic and structural closures with multiple-stacked reservoirs can trap hydrocarbons at different levels. The Pomeroon seasonal carbonates and deep marine shales act as the seal (see here). Exxon Mobil (XOM) has shown in Block Stabroek there are at least three main types of reservoirs, namely, Upper Cretaceous sandstones, Upper Cretaceous carbonates, and Tertiary sandstones, all having excellent reservoir quality (Fig. 4). Exxon Mobil, with Liza and other discoveries, proves such petroleum systems work.

Fig. 4. The porosity-permeability variations of Liza reservoir sandstones. Source.

According to a USGS study dated 2012, the Guyana-Suriname Basin is estimated to contain 13,608 MMbbl of undiscovered oil, 21,196 Bcf of undiscovered natural gas, and 574 MMbbl of undiscovered NGLs. The basin may end up to have approximately 147 undiscovered fields - a lot to be aspired by fellow explorers operating in the basin (Fig. 5).

Fig. 5. Guyana-Suriname Basin, undiscovered field-size distribution. Source.

Exploration history

In broad brushstrokes, I believe the basin underwent four stages of exploration:

  • A regional survey of the shelf was conducted by Standard Oil of California (CVX) in 1958 but no wells were drilled. On October 13, 1965, the giant Tambaredjo Field was discovered in onshore Suriname (see here), now operated by state company Staatsolie; however, subsequent exploration has been largely unsuccessful (see here).
  • In 1984, the World Bank supported the overhaul of Guyana regulations and helped promote the country's petroleum potential, which led to the grant in 1988 of two offshore licenses, one to Lasmo (E) and BHP (BHP), the other to Petrel Resources (OTC:PTREF) and Guyana Exploration Limited (aka, GEL), and in 1991 of one offshore block to Mobil (XOM). Nonetheless, maritime territorial dispute and a series of unsuccessful exploration wells led to the exit of foreign operators and exploration in the region ground nearly to a halt. The legacy from this stage is a fiscal regime conducive to foreign company's participation in the nascent petroleum E&P of the country, with the government take at 60% (see here)(Fig. 6).

Fig. 6. Guyana's government take in comparison to selected offshore E&P fiscal regimes. Source.

  • In September 2007, Guyana and Suriname finally resolved the maritime dispute through the arbitration of the UN Tribunal of the Law of the Sea, luring back international E&P companies, such as CGX Energy (OYL.TSX-V)(OTCPK:CGXEF), Repsol-YPF (OTCQX:REPYF), and Esso (XOM), which together with partners Nexen (CEO) and Hess (HES) signed PSC Stabroek with the Guyanese government. Meanwhile, a cohort of wildcatters who had great success off West Africa came to the basin believing the petroleum systems in Guyana were supposed to be the mirror images of those in West Africa, these including Tullow Oil (OTCPK:TUWLF), Kosmos Energy (KOS) and Eco Atlantic (OTC:ECAOF)(see here)(Fig. 7).

Fig. 7. The mirror image theory of West Africa and the Guyana-Suriname Basin. Source.

  • Exxon Mobil's Liza-1 discovery in May 2015 ignited the oil industry's interest, convincing more operators in West Africa, including Cairn Energy (OTC:CRNZF), Chevron (CVX), Statoil (EQNR), and Total (TOT), to join the game in the Guyana-Suriname Basin. An oil rush is going on.

Discoveries

There was actually a discovery - Zaedyus-1 - made in offshore French Guiana prior to Liza-1; unfortunately, the subsequent appraisal wells did not encounter commercial hydrocarbons (see here and here).

Liza-1 discovery. Exxon Mobil found more than 295-ft of high-quality, oil-bearing sandstone reservoirs in wildcat Liza-1 in the Stabroek Block off Guyana. The discovery was successfully appraised by four wells, confirming it to contain over 1,000 MMboe.

A series of major finds followed, including Payara, Liza deep, Snoek, Turbot, Ranger, Pacora, Longtail, Hammerhead, and Pluma, which in aggregate contain over 5 Bboe of recoverable resources (Table 1; Fig. 8). After finding these 10 fields, Exxon Mobil announced two more discoveries, i.e., Tilapia and Haimara, adding to the more than 5 Bboe of recoverable resources (see here).

Fig. 8. Oil discoveries in Block Stabroek, shown as: 1, Liza; 2, Liza Deep; 3, Payara; 4, Snoek; 5, Turbot; 6, Ranger; 7, Pacora; 8, Longtail; 9, Hammerhead; 10, Pluma; 11, Tilapia; 12, Haimara. Modified from source.

Table 1. A list of discoveries in the Stabroek Block by Exxon Mobil and partners. Please note, the recoverable resource for each find was deduced from Hess and Exxon press releases (see here and here) and here, and is hence approximate.

Liza development. The over 1,000 MMboe Liza will be developed in phases (see here)(Fig. 9), with phase 1 final investment decision, aka, FID, reached in 2017.

Fig. 9. A development scenario of the discoveries in the Stabroek Block in five phases. Source.

  • The $4.4 billion phase-1, aiming to develop approximately 450 MMbo, will produce first oil by early 2020 at 120,000 bo/d from 8 production wells, 6 water injection wells, and 3 gas injection wells, in four drill centers, in 1,500-1,900m water depths, connected to FPSO Liza Destiny via subsea umbilicals, risers and flowlines ranging from 3.6km to 6.6km in length (see here).
  • Liza phase 2 development is scheduled to come on stream in mid-2022, with a production capacity of 190,000-220,000 bo/d (see here)(Fig. 10).

Fig. 9. Phase 1 and phase 2 development plans. Source.

  • A third development, Payara, is expected to start up as early as 2023 (see here).

The partners now envision at least five FPSO vessels producing more than 750,000 bo/d by 2025.

Liza economics. Highlighting Exxon Mobil's extraordinary ability to handle deepwater projects, Liza phase 1 will break a record in deepwater fields from discovery to first oil, will have $6/boe development costs, and is estimated to be able to break even at $35/bo of Brent oil price (phase 2 at $25/bo), at the lowest end of major global offshore development projects and all shale plays (Fig. 10).

Fig. 10. Liza’s breakeven price, as compared with 50 other offshore projects and shale plays. Source.

Assuming $65/bo Brent, free cash flow can be achieved in 2022, only about two years after first oil at Liza (Fig. 11).

Fig. 11. A comparison of Liza phase 1 with a typical Delaware Basin shale development project (left) and cash flow projection for Liza phase 1 (right). Note: (1) Figures are gross, purchased FPSO, and EUR 500 MMbo; (2) Figures are gross, assuming zero acquisition cost, 1,500 horizontal well locations, 30 risked wells per section, GOR at 2.5 Mmscf/bo, average forward $8.5 million DC&F cost for ~7,000’ laterals (variable by operator), EUR based on the decline curve analysis for over 2,000 horizontal Delaware wells online from January 2017 with assumption of same EUR per well on average for all 1,500 forward Wolfcamp and Bone Spring wells, total development EUR 1.6 Bboe (1.0 Bbo); (3) Required WTI price for NPV-10 neutral, assumes $5/bo Brent-WTI differential; All numbers rounded. Source.

Investor takeaways

As we learned above, it took Exxon Mobil 16 years from first signing the Stabroek Block to striking oil: along the way, it witnessed at least three oil crashes, two maritime territorial disputes (with Suriname and Venezuela), and 22 dry holes drilled by previous explorers.

With Liza, the Guyana-Suriname Basin was suddenly transformed into the hottest deepwater petroleum province in the world. Guyana, one of the poorest country in Latin America, is poised to become the next Brunei. Billions of dollars of value are supposed to be created for shareholders of Exxon Mobil, Hess, and Nexen (a subsidiary of Chinese state oil company CNOOC Limited). A pack of explorers rushed in to have a piece of the action because they realized that the basin, now much de-risked, and the petroleum systems therein, now proved working, had a lot more yet-to-find oil; the resolution of maritime dispute cleared the way for exploration and an attractive fiscal regime also helps.

As investors, how are we supposed to profit from the Guyana oil rush? It is beyond the scope of the present article to provide a quick answer. However, I believe the salient observations presented above position us for asking intelligent questions that will lead to a unique investment angle, questions including:

  • Exactly how much value will likely be added to the Stabroek partners and whether such added value has been priced in;
  • Which other operators are also present in the Guyana-Suriname Basin and what kind of competitive landscape is taking shape there;
  • As the new knowledge gleaned from the Stabroek discoveries spreads from Exxon Mobil to fellow wildcatters operating in the adjacent areas of the basin, which will most likely strike new finds and, from an investor's vantage point, whose stock may deliver the most bang for the buck over the next few years;
  • Exxon Mobil's relentless pursuit of optimal efficiency in exploring and developing the Stabroek deepwater project may have played an important role in its success in Guyana. Which operators are capable to surmount the bar that has been raised by Exxon Mobil and which may not be able to?

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.