Published:
Tuesday, February 28, 2017
In November 1969 Phillip’s Petroleum (now Conoco Phillips) discovered the Ekofisk field in the Norwegian North Sea. The following year British Petroleum discovered the Fortis field and in 1971 Shell and Exxon discovered the Brent oilfield. Today, Brent crude gives us the reference price for two thirds of internationally traded crude oil. The discovery of these giant oil fields in the technically challenging and frigid North Sea changed the economies of Norway and the United Kingdom.
A giant oilfield is defined as one which has > 500 million barrels of recoverable oil. Norway is today one of the richest countries in the world and is the model for how revenue derived from extractive industries ought to be managed. Thanks to its discoveries, the UK (particularly Scotland) has developed as a major centre for oil and gas production, offshore technology, education and energy services.
Fast forward 40 years. At the start of the second decade of the 21st century (year 2011), the Irish oil company Tullow discovered the Zaedyus oilfield in the deepwater province of French Guiana. Four years later, in May 2015, American supermajor Exxon Mobil announced it had made a discovery of oil in Guyanese territorial waters. That discovery happened in the Liza-1 well in 5,719 feet of water after drilling to a depth of 17,825 feet. A year later, Exxon announced that the Liza discovery had exceeded expectations and was 800 million to 1.4 billion barrels of recoverable oil equivalent thus making it a giant oilfield.
Guyana’s neighbour Suriname has also been exploring its deepwater. Around the time, Liza was discovered, BHP-Billiton had just concluded the largest 3D seismic survey ever conducted by an International Oil Company in T&T’s deepwater. BHP’s deepwater exploration campaign is far from over and I remain confident that T&T may yet join the deepwater party.
Last month (January 2017) Exxon Mobil announced a second discovery. The Payara discovery is 10 miles northwest of the 2015 Liza discovery. Exxon also confirmed that the Liza 3 appraisal well had found another reservoir below the Liza field with another estimated 100 million to 150 million barrels of oil.
What does all this mean? In the oil and gas industry there is a statistical tool called the Creaming Curve. A Creaming Curve represents the relationship between cumulative resource growth and the number of exploration wells drilled. The name comes from the fact that the biggest discoveries (the cream) are normally made early in the basin’s exploration history. As time passes, remaining prospects will be smaller and have a lower probability of discovery.
It is my opinion, therefore, that Liza and Payara are the beginning of things to come for Guyana. More oil and gas will be discovered in Guyana’s waters and possibly in Suriname’s deepwater. All these discoveries can be traced back to a report by the US Geological Survey (USGS) in the year 2000 which foretold the basin’s potential. The USGS estimated that the Guyana/Suriname basin had the potential for 14.2 billion barrels of oil and ranked the basin as one with high potential alongside the Santos Basin of deepwater Brazil.
If the Creaming Curve thesis is correct Guyana is only at the beginning of what would be a series of discoveries similar to what happened in the North Sea between the late 1960’s and the late 1970’s. Indeed, the Guyana-Suriname basin may well be the New North Sea.
Exxon estimates that oil production in Guyana will commence in mid-2020 at an initial rate of 100,000 barrels of oil per day. This will mean an unprecedented flow of revenue for Guyana that could see its economy grow in double digits for most of the next decade. Given that the discoveries have been made 120 miles from the coastline it is unlikely that the oil would be monetised via pipeline to shore. This raises questions about value added activity and downstream industries.
The discovery of oil in the Guyana-Suriname basin is one of the most significant events in the history of Guyana and in the history of Caricom. I’m not sure that Caricom knows what to make of all this. Caricom’s energy focus has, after all, been renewable energy. What is certain is that it will change the trajectory of the Guyanese economy from 2020 and onwards.
A Guyana with a national income many factors higher than it is today means increased demand for everything. Guyana will also seek to support as much oil and gas activity as possible from within their country. Therein lies the opportunity for the Guyana and T&T private sectors to collaborate in building sustainable supply chains.
Last month I delivered a lecture in Georgetown to a packed hall in the Pegasus Hotel. I spoke about what T&T got right and what we got wrong. I addressed the issues of Dutch Disease and Resource Curse Thesis. I said Guyana had an opportunity to learn from the mistakes and to incorporate the best practices of other countries.
Guyana does not have to look very far for an example of how not to manage an oil based economy–see Venezuela. Guyana has three years to build capacity, establish institutions and put regulations in place. It’s a huge task but with properly applied political will all things are possible.
Columnist