With a production target already surpassing the 120,000 barrels per day forecast, Guyana will this year see heightened oil and gas activity as Stabroek Block partner, Hess, yesterday remained bullish on operations here and announced a number of developmental plans this year for its “growth and cash engine”.
Among them are plans to further increase production offshore in the Sta-broek Block by the third quarter of this year; have six drill ships by the end of March to execute the exploration and appraisal of some 12 to 15 wells; seeing the arrival of the Liza Unity FPSO by the end of September; and submit a Field Development Plan for the Yellowtail well project by December.
“Our differentiated portfolio is balanced between short cycle and long cycle assets, with our focus on the best rocks for the best returns. The Bakken, deepwater Gulf of Mexico, and Southeast Asia, are our cash engines, and Guyana is our growth engine,” Chief Executive Officer John Hess yesterday said at the company’s fourth quarter 2020 earnings call.
“Guyana becomes a significant cash engine as multiple phases of low-cost oil developments come online, which we believe will drive our Company’s breakeven price to under the US$40 per barrel Brent, and provide industry leading cash flow growth over the course of the decade,” he added.
Key to prioritising its financial plans was to use operations here to help increase its free cash flow to deal first, with debt reduction, and then increase cash returns to shareholders through dividend increases and opportunistic share repurchases.
Reflecting on 2020, he said that the company achieved strong operating results; overcoming difficult market conditions and the challenges of working safely in the pandemic.
“I am extremely proud of our workforce for delivering production in line with our original guidance despite a 40% reduction in our capital and exploratory expenditures. In response to the pandemic’s severe impact on oil prices, our priorities have been to preserve cash, preserve our operating capability, and to preserve the long-term value of our assets. In terms of preserving cash, we came into 2020 with approximately 80% of our oil production hedged with put options for 130,000 barrels per day at US$55 per barrel West Texas Intermediate, and 20,000 barrels per day at US$60 per barrel Brent,” he noted.
To enhance cash flow and maximise the company’s value of production, the company reduced its capital and exploratory spend for 2020 by 40%, from the original budget of US$3 billion down to US$1.8 billion.
However, Guyana’s operations remained unhindered as the company boasted a 2020 that was “outstanding”.
“On the Stabroek Block, where Hess has a 30% interest, and ExxonMobil is the operator, 2020 was another outstanding year. Three oil discoveries during the year at Uaru, Redtail-1, and Yellowtail-2, brought total discoveries on the Stabroek Block to 18. The estimate of gross discovered recoverable resources on the block was increased to approximately nine billion barrels of oil equivalent. And we continue to see multibillion barrels of future exploration potential remaining. In December, production from Liza-1 reached its full capacity of 120,000 gross barrels of oil per day. The Liza Phase 2 development is on track to achieve first oil in early 2022, with a capacity of 220,000 gross barrels of oil per day.”
Further, he added, “Another key 2020 milestone was the sanctioning of our third oil development on the Stabroek Block in September at the Payara Field. Payara will have a capacity of 220,000 gross barrels of oil per day, and is expected to achieve first oil in 2024.”
This year, to protect its cash flows, Hess has hedged a 100,000 barrels per day with US$45 per barrel West Texas Inter-mediate (WTI) put options, and 20,000 barrels per day with $50 per barrel Brent put options. “Our 2021 capital and exploratory budget is US$1.9 billion, of which more than 80% will be allocated to Guyana and the Bakken. Our three sanctioned oil developments on the Stabroek Block have breakeven Brent oil prices of between US$25 and US$35 per barrel, world-class by any measure. Front-end engineering and design work for a fourth development at the Yellowtail area is underway, and we hope to submit the development plan to the government for approval before year-end,” he said.
Hess pointed out that it continues to see the potential for at least five FPSOs to produce more than 750,000 gross barrels of oil per day by 2026, and longer term for up to 10 FPSOs to develop the current discovered recoverable resource base.
“We will continue to invest in an active exploration and appraisal programme in Guyana in 2021, with 12 to 15 wells planned for the block. The Hassa-1 exploration well recently encountered approximately 50 feet of oil bearing reservoir in deeper geologic intervals. Although the well did not find oil in the primary shallower target areas, the Hassa well results confirm a working petroleum system, and provide valuable information about the future exploration prospectivity for this part of the block. In the Bakken, we plan to add a second rig during the first quarter, which will allow us to sustain production in the range of 175,000 barrels of oil equivalent per day for several years, and protect the long-term cash flow generation from this important asset,” he said.
Sanctioned developments
President and Chief Operating Officer of Hess, Greg Hill, pointed out that the company made significant advances on all three of their sanctioned developments on the Stabroek Block, with Liza Phase 1 reaching its full production capacity in December, Liza Phase 2 remaining on track for first oil early next year, and Payara, sanctioned in September, with first oil expected in 2024.
“Continued exploration and appraisal success increase the gross recoverable resource estimate for the block to approximately nine billion barrels of oil equivalent.
“We continue to see multi-billion barrels of exploration upside on the Stabroek Block, and we are planning an active exploration programme in 2021,” he said.
And detailing plans for the year, Hill announced that in March, ExxonMobil will bring a fifth drillship, the Stena DrillMAX in the Kaieteur block, and in April, a sixth drillship, the Noble Sam Croft. “We plan to drill 12 to 15 exploration and appraisal wells in 2021 that will target a variety of prospects and play types. These will include lower risk wells, near-existing discoveries, higher risk step-outs, and several penetrations that will test deeper lower Campanian and Santonian intervals. This ramped-up programme will allow us to accelerate exploration in the block and enable optimum sequencing of future developments. In addition, the emerging deep play, which we believe has significant potential, needs further drilling to determine its commerciality and ultimate value,” he said.
“Over the next several months, we will participate in two exploration wells and two appraisal wells on the Stabroek Block. The next exploration well to be drilled is Koeb-1, which is located approximately 16 miles northeast of Liza. This well will target Liza type Campanian-aged reservoirs and is expected to spud in February using the Stena Carron drillship. In March, we expect to spud the Longtail-3 appraisal well, which will provide additional data in the Turbot-Longtail area and we will drill a deeper section that will target lower Campanian and Santonian geologic intervals. The Stena DrillMAX will drill this well,” he added.
At the beginning of the 2021 quarter, Hess said that operations offshore will see the spudding of the Uaru-2 appraisal well, utilising the Noble Don Taylor drillship. Success there, and at Mako-2, which will be drilled later this year, could move the Mako-Uaru area forward in the development queue.
Then in May, Hill said that the partners plan to spud the Redtail-1 exploration well located approximately 12 miles east of Liza.
Also giving an overlay of operations here he said that it was in mid-Decem-ber that the Liza Destiny Floating, Production, Storage, and Offloading vessel achieved its nameplate capacity of 120,000 gross barrels of oil equivalent per day. “And since then has been operating at that level or higher. During 2021, the operator intends to evaluate and pursue options to increase nameplate capacity. For 2021, we forecast net production from Guyana will average approximately 30,000 barrels of oil per day with planned maintenance and optimization downtime being broadly offset by an increase in nameplate capacity,” he said.
“The Liza Phase 2 development remains on track for first oil in early 2022. The overall project, including the FPSO, drilling and subsea infrastructure is approximately 85% complete. We anticipate that the Liza Unity FPSO, which will have a capacity of 220,000 gross barrels of oil per day, to sail from the Keppel Shipyard in Singapore to Guyana by mid-year.”
Payara, the third sanctioned development on the Stabroek Block, will utilise an FPSO with a gross production capacity of 220,000 gross barrels of oil per day with first oil expected in 2024. “The hull for the Prosperity FPSO is complete, topside construction activities are under way, and they expect the integration of the hull and topsides to begin at the Keppel yard in Singapore by year end. Front-end engineering and design work is ongoing for a fourth development at Yellowtail. This work will continue through 2021 and we anticipate being ready to submit a plan of development to the Government of Guyana for approval in the fourth quarter,” he said.
Overall, the company told investors that “Guyana continues to get bigger and better, all of which positions us to deliver industry-leading cash flow growth and significant shareholder value over the course of the next decade.”
