GORDON FELLER, Contributing Editor
Big news hit the headlines on Oct. 23, 2023: Chevron's proposed $53 billion acquisition of Hess. The key attraction was Hess' 30% stake in the Guyana-based Stabroek Block. Perhaps the most complex challenge associated with completing this deal is the arbitration filings by ExxonMobil and CNOOC, legal moves that claim pre-emption rights. As of this writing, high levels of uncertainty cloud the deal.
REGIONAL OVERVIEW
In the background of that transaction, during the past 12 months, Guyana and Suriname have started to become a fulcrum of energy development in the Americas. While they are both found in the same region, these two countries still have different oil and gas stories to tell. Major production growth is imminent in Guyana, while Suriname is still a few years away from first oil but with significant future potential from recent discoveries.
Guyana is now the third-fastest-growing non-OPEC producing country, per the U.S. Energy Information Administration. This tiny country has increased crude oil production by an annual average of 98,000 bpd from 2020 to 2023, Fig. 1. With estimated reserves of more than 11 Bboe, the immense resource potential continues to attract industry interest. According to one leading expert, Pat Jelinek, EY Americas Oil and Gas Leader, Guyana and Suriname are emerging as “pivotal areas for oil and gas development, with the potential to significantly influence global energy dynamics.”
Jelinek points to the fact that “the transition from exploration to development in Guyana is still in its nascent stages,” which means that it presents a unique mix of opportunities and challenges. The country's burgeoning energy sector is poised to catalyze socioeconomic progress, leveraging development to fuel industrialization and infrastructure improvements. However, the industry's rapid growth is tempered by the need for what Jelinek calls “operational excellence and innovation” to navigate a changing regulatory and risk landscape.
Jelinek counsels companies that may be eyeing the Guyana region to “recognize the evolving nature of the local content regulations” and to establish robust partnerships and compliance frameworks.
Suriname, on the other hand, presents something that Jelinek labels “a slightly more mature landscape with varied operators.” This could offer different strategic advantages and synergies, especially in gas field development. Suriname has been an oil producer for approximately 45 years. It expects significant growth in offshore oil production with the first Final Investment Decision (FID) in 2024. Some (including the national government) now estimate that Suriname will produce more than 200,000 bopd as early as 2028.
For companies considering entering, or expanding their presence in, either Guyana and Suriname, Jelinek thinks that it is imperative to have a “deep understanding of the distinct regulatory, tax, and labor frameworks of each country.” Expertise in navigating these aspects is crucial to maximizing opportunities and mitigating risks. The path to success requires a careful and informed approach, considering the maturing operational environment and the need for industry-leading practices in operations, regulatory compliance and risk management.
GUYANA: STABROEK BLOCK DEVELOPMENT
ExxonMobil and its project partners in Guyana’s Stabroek Block have successfully produced first oil from their third FPSO, the Prosperity, Fig. 2. According to Wood Mackenzie's Upstream Research Principal Analyst, Luiz Hayum, the production situation is dynamic: “Impressively, it took a record-breaking two months to reach production capacity in the FPSO. Globally, no other FPSO project that started production in the past five years has had such a short ramp-up time.”
Commissioning work ahead of first oil was critical. It enabled gas injection systems to start shortly after production, eliminating flaring and allowing oil production without restrictions.
Hayum believes that “the operational performance of the three onstream FPSOs has also been stellar. Project partners have maintained production at 10% to 15% above nameplate capacity for over a year now, Fig. 3. Work on topsides optimization takes full advantage of liquids processing capacity while water production is low,” In fact, Guyanese oil production has exceeded 640,000 bpd, while the installed nameplate processing capacity is 560,000 bpd.
During this past April, the Stabroek Block partners sanctioned FPSO 6, Fig. 4. Here is Hayum’s summary: “This sixth development project will require investments of $12.7 billion while generating a net present value of $10 billion. It’s interesting to note how ExxonMobil could maintain the same project cost as FPSO 5, sanctioned a year earlier. The two projects are similar in size and complexity, and it’s a big win to keep costs flat despite cost inflation pressures elsewhere. Standardization and long-standing partnerships with contractors are paying off.”
Suriname potential development. Looking at the next 12 months, and outside the Stabroek Block, Hayum expects “Block 58 (TotalEnergies and APA Corp) in Suriname to make progress toward a final investment decision, Fig. 5. Further down the line, Block 52 (PETRONAS and ExxonMobil) is also a strong candidate for a commercial project.”
Potential gas activity. Discussions and actions regarding gas developments have heated up in the past 12 months. Hayum says that the Guyanese government “wants to test monetization options for, in our estimates, 25 Tcf of discovered gas. ExxonMobil responded with a (so far) successful exploration and appraisal campaign targeting gas in the southeast of the Stabroek Block. The large volumes will require LNG. However, making an ultra-deepwater LNG project competitive will require a combination of stellar productivity, the right commercial structure, fiscal terms, and timing.” Competition between suppliers will likely heat up with energy transition headwinds in the long term.
Palzor Shenga, Rystad Energy’s V.P. for Upstream Research and Analysis, notes that Guyana led the country rankings for new volumes in 2023. This was due to the Fangtooth Southeast and Lancetfish assets in the ExxonMobil-operated Stabroek Block, as well as the CGX Energy-operated Wei field in the Corentyne Block. Additionally, he cites the fact that “ExxonMobil continued its exploration success with the announcement of the Bluefin discovery in Guyana in the first quarter, this year’s first discovery in the prolific Stabroek Block.”
Gauging exploration success. Nonetheless, after the announcement of 30-plus independent new discoveries—nearing 12 Bboe—“the prospect size has relatively decreased, hence, the resource associated with the new discovery. Therefore, leading to decline in average volumes discovered per well, per year. This decline in new volumes, or in other words, completion of drilling high-ranked prospects, with a higher chance of success or higher pre-drill resources, may have prompted ExxonMobil and its consortium partners to move away from its comfort zone,” dubbed ‘the proved southeastern part,’ and “explore the remaining untapped potential of the area. The major is now gearing not only to drill the unexplored western part,” but additionally to probe the country’s gas potential.
Shenga expects a more intense focus during the next 12 months of oil and gas activity in Guyana and Suriname: “As new global discovered resource continues to struggle, the Guyana-Suriname basin—in addition to the recent uprising of the Namibian Orange basin—remains the global exploration hotspot and may continue to shoulder the announced new volumes, as it has in the last couple of years. As a result of these magnificent achievements, explorers have showcased their appetite to explore the remaining untapped potential of these underexplored basins.”
To date, says Shenga, ExxonMobil has focused on the proven southeastern part of its prolific Stabroek Block, “primarily focusing on the basin’s liquid potential. However, it is looking to move toward unexplored and gas-focused areas to further enhance its prospectivity. Apart from exploration drilling efforts to discover more hydrocarbons in the established part of its tract, the U.S. major has said it plans to drill new wells in unchartered terrain, two on the western part of the block, west of the Essequibo River.”
The remaining five wells are planned to be drilled on the southern edge of the southeastern portion of the block and are prognosed to be gas-rich toward the Suriname border. Therefore, Shenga expects to see “an initiative to tap associated gas volumes, and fulfill the government and consortium partners’ long-term goal” to reduce the cost of electricity within the country.
As the resource size of individual new volumes goes down, Shenga predicts that “we may witness a change in development pattern, i.e., moving towards developing the remaining volumes as a cluster, clubbing a couple of discoveries together, or acting as a satellite field to the existing infrastructure to maintain the development cost.”
THE OPERATING ENVIRONMENT
To better understand the peculiar local dynamics, we tapped into rich insights offered by Lucas Marsden-Smedley Rodriguez, associate director of FTI Consulting. He thinks that, in four areas, there are important dimensions of the situation which might escape notice:
Market dynamics. In Guyana, existing players have announced more projects and expansion plans—the country hopes to have up to 12 FPSOs in operation. How might the market change? Rodriguez argues that the government “will likely issue new licenses this year, and more companies are expected to enter the production phase. The market dynamics are intensely competitive (especially considering the need for a win from U.S. majors following recent setbacks and a reduction in overseas operations), which has led to tensions in M&A deals and geopolitics,” with activity from both U.S. and Chinese companies.
Suriname is a few years behind (first oil production is expected in 2028), but final investment decisions are expected by the end of the year. In Suriname, TotalEnergies operates Block 58 (50%) where five discoveries have been made and where development studies are in progress, with the objective of sanctioning a 200,000 b/d oil project by end 2024, Fig. 6. Rodriguez says that large international players, which are capable and willing to make the capital investment (some also active in Guyana), “are expected to take a leading role. Along with technical exploration, corporate dealings are in a period of heightened activity; more consolidation is expected.”
Economics. Rodriguez’s second point relates to how oil impacts the wider economy: “Unless mitigated, the uptick in oil exports will appreciate the value of the Guyanese dollar, making other exports like rice and sugar less competitive, while the influx of oil revenue will continue to inflate the price of commodities.” Guyana’s inflation is expected to remain at over 5%; Suriname is already dealing with double-digit inflation, independent of oil.
Add to this the volatility of global oil prices, and the eventual slowdown in demand as economies decarbonize, and Guyana and Suriname must make concerted efforts to diversify the economy and avoid the “resource curse.” Rodriguez notes that important entities, such as Suriname’s Business Association (VSB) and Guyana’s sovereign wealth fund (the Natural Resource Fund, founded in 2020), “have reinvested profits into other sectors such as health and technology.”
In Guyana, the government has proposed the strengthening of infrastructure (e.g., the road to Brazil through Lethem and the bridges to Suriname and over the River Demerara), the creation of a smart city dubbed “Silica City,” large-scale production of different crops like soy and corn, an ICT initiative, and the granting of over 20,000 scholarships.
Rodriguez is asking whether this transition to a services-based economy can be made, or if it will result in a landscape of white elephants, and he thinks that the answer here remains to be seen.
Environmental considerations. Rodriguez’s third point is about the environment: “Suriname and Guyana are two of three carbon-negative countries (‘carbon sinks’) in Latin America, and are in the top five countries globally for fresh water and forest per capita.” Previous administrations have prioritized sustainable initiatives, such as former Guyanese president Bharrat Jagdeo’s “Low Carbon Development Strategy 2030” and a carbon capture compensation agreement with Norway.
They are also countries that are highly vulnerable to climate change, with Rodriguez noting that they’ve “already fallen victim to coastal flooding, heat waves, salination of fresh water and increased precipitation: the majority of the population in Guyana live below sea level.” Considering the prior scandals regarding non-compliance with environmental standards (e.g., lack of oil spill insurance), Rodriguez thinks “the result will be intense scrutiny over greenwashing, sustainable practices, and pressure on the government to reinvest in green energy and encourage a transition to renewable resources.”
Operational risks. Rodriguez’s fourth point is about risk: “Risks exist at all levels and must be mitigated to operate effectively and take full advantage of the upside potential. The main risk revolves around losing the ability or license to operate.” Guyana has been described as slipping into a one-party state, while there is a growing wealth gap and oil is not a major employer. Suriname has faced debt defaults and an erosion of faith in institutions. Both countries have faced riots in recent history: post-election violence in Guyana, and demonstrators in Suriname protesting high fuel and electricity prices.
If unemployment remains high and proceeds are not distributed fairly among ethnic groups, Rodriguez thinks that “social pressure could lead to resource nationalism and government action. Private companies lost their stake after Venezuela expropriated assets; this is highly unlikely in Guyana and Suriname, though Guyana may demand higher royalties, which, at the moment, are very favorable to companies, and pass content legislation to improve national benefit.”
A special kind of risk facing companies is that of fines stemming from violations of the U.S. Foreign Corrupt Practice Act, or investigations by the U.S. Department of Justice or the U.S. Securities and Exchange Commission, among others. Rodriguez says, “both countries, with only about 50 years of independence and a weak private sector, suffer from systemic corruption.” He points out that the Guyanese government has faced legal challenges for alleged election tampering, cronyism in the awarding of contracts, and failures to audit or enforce compliance from oil companies.
To make matters worse, Suriname’s former president, Desiré Bouterse, was convicted of drug trafficking and murder; the country also has been criticized by the U.S Department of State, among others, for a lack of transparency in oil bidding and the delay of freedom-of-information legislation. Rodriguez concludes with this recommendation to all the players, whether they be investors, lenders, operators or suppliers: “Companies must be rigorous in their operations to manage third-party and supply chain risks, including potential human rights violations: both regions are known for human trafficking and child labor.”
GUYANA/SURINAME 12-MONTH OUTLOOK
Here are some predictions regarding oil and gas activity in Guyana and Suriname over the next 12 months: