Introduction
Today’s column is primarily aimed at amplifying those references, which were made last week to the dynamic features of Guyana’s ‘potentially massive’ oil and natural gas discovery. To recall, the four features mentioned, were 1) the physical/geological characteristics of the discovery; 2) going forward, the ownership, control, and organizational responsibility for producing and exporting the oil and gas; 3) the anticipated price/cost relation when this production and export come on stream; and 4) the Venezuela border controversy, which could place the gas industry in jeopardy.
Each of these four features are amplified in the order given, in today’s and coming columns. At this juncture, readers should be reminded that this ongoing discussion is directed at appraising the several complex economic, geo-political, and other considerations, involved in transforming Guyana’s discovery into a sustainable commercially viable oil and natural gas industry.
The next section starts with the key physical/geological attributes of the discovery. These attributes centre on, 1) the geological make-up of the discovery, 2) its location, and 3) its size or quantum of proven reserves.
The Atlantic Mirror theory
Last week’s column referred the US Geological Survey’s World Petroleum Assessment of 2000, which has identified the Guyana-Suriname Basin, geologically, as a potential reservoir of approximately 15.2 billion barrels of crude oil. The consensus among geoscientists appears to be that the petroleum geology of the Guianas Equatorial Margin “resembles that of West Africa”, where several large petroleum deposits have already been discovered, including the Jubilee discovery in the Tano Basin, offshore Ghana.
The literature also suggests that geoscientists believe this phenomenon is the direct outcome of the earlier drifting apart of South America and Africa over geological time, 90 million years ago. The geologic principle argued is that, the Guianas Equatorial Margin encompasses both offshore and onshore portions of Guyana, Suriname, French Guiana, as well as limited portions of Venezuela and Brazil. Further, the Guianas Equatorial Margin appears to include two sedimentary basins, namely, the Guyana-Suriname Basin and the Foz do Amazonas Basin.
Justin Stolte in his recent article, ‘Testing the Atlantic Mirror Theory’, has expressed support for the view that claims: “The petroleum system of the Guianas Basin is believed to be a mirror image – labelled the ‘Atlantic Mirror’ theory of the petroleum system present in West Africa.” Indeed, he goes further and also suggests that “the similarities of such basins” have led to the rush by several companies to explore for gas and oil offshore and onshore Guyana!
Offshore
As regards the second attribute, the Guyana discovery is located about 120 miles offshore. This location carries special attributes. To begin with, it means that the exploration and production of crude oil would require the use of oil rigs to facilitate underwater drilling and extraction. Typically, this process adds significantly to the unit costs of oil production, because the drilling platforms used for development are themselves very costly. And, indeed, the same can be said also for the production platforms, which have to replace them. Similarly, offshore natural gas extraction requires drilling, as well as production platforms.
At this point in time the best estimate is that, worldwide, 25 per cent of proven crude oil deposits are expected to be encountered offshore.
Readers should also take cognizance of the fact that, for human and environmental concerns, especially safety, regulatory regimes for offshore oil and gas exploration are being further strengthened worldwide. Nevertheless, even as this article is being written, offshore oil and gas exploration and production are rapidly spreading across large areas of the globe, including the Americas, Russia, Brazil, Africa, India, the Middle East and East Asia.
As a consequence of recent accidents, it is now widely recognized that offshore drilling presents major environmental challenges. And, meeting these challenges uniformly raises unit costs of production. While it remains true that important technological innovations and improvements in techniques have been occurring in the industry, empirical data show that these have not reduced unit costs sufficiently for investors. Nevertheless, it is safe to assert that the range of facilities now being used, especially deep-water mobile offshore drilling units in such locations has increased enormously, resulting in operations being undertaken in deeper and deeper water basins.
A giant oil and gas field
The size of the Guyana discovery is the third and final element of its physical/geological features to be addressed in this column. This size makes the discovery fall into the category of ‘giant oil and gas field’. In the literature, this classification applies to fields with at least 500 million barrels (79 million cubic metres) of ultimately recoverable oil or gas equivalent. Wikipedia reports “geoscientists believe these giants account for 40 percent of the world’s petroleum reserves … clustered in 27 regions of the world.”
This information is particularly comforting to those who own and/or control the exploration and subsequent development of the Guyana discovery. Further, the referenced US Geological Survey’s estimate of a deposit of around 15.2 billion barrels of oil in the Guyana-Suriname Basin gives hope for more discoveries. And, from this standpoint, it provides incentives for further exploration by the present finders, along with other exploration enterprises.
It is evident that the larger the potential recoverable deposit, the greater is the likelihood of finding willing investors to develop those deposits. More to the point, however, the present finders, ExxonMobil and its partners represent “good brands” in “oil plays”. This generates market confidence, bolsters the expectation of stability and even profitability as Guyana transitions from this discovery to production and export.
Conclusion
Next week I shall continue addressing the three remaining dynamic features of the Guyana discovery, starting by paying attention to the finders: ExxonMobil’s Guyana subsidiary, Esso Exploration and Production Guyana and its partners Hess Guyana Exploration and China National Offshore Oil Corporation, CNOOC Nexen Petroleum Guyana.
