Partner in the offshore Stabroek Block, Hess Guyana, says it sees “simply outstanding financial returns” from the fourth planned well development in the Stabroek Block and it also said that the best possible use of gas from oil extraction would be for re-injection.
Hess Guyana said it is committed to supplying some of the gas for domestic use here, but President and Chief Operating Officer of Hess Corporation, Gregory Hill, pointed out that the project is still in the design phase and they could not give any details until it is sanctioned. Hill was at the time responding to Scotiabank Analyst Paul Cheng’s question on the 2016 Production Sharing Agreement [Article 12] which dealt with utilization of the associated and non-associated gases.
“Regarding the long-term gas solution… there are studies that may, but its way out in the future, Paul. So, it’s not anything certainly we need to worry about in the next five years, potentially even well beyond that. So, but there are studies going on, because remember the highest value of the gas is pressure maintenance of these reservoirs… and the other unique part about the gas is it’s miscible,” Hill said on Wednesday at the company’s third quarter earnings call. “So there will be an enhanced oil recovery effect as a result of putting that gas back in the reservoir. So the highest and most beneficial use, if you will, of that gas is actually reinjection.”
Hill explained that the issue was being dealt with in two phases where some for Guyana’s domestic use was currently being explored and a long term plan to decide on after extensive studies. “So I think there [are] two pieces, Paul. So, the first piece is the gas to energy project, right. It’s going to be a slip stream of gas, if you will, 5,200 million cubic feet a day pipeline to shore, that would supply gas to an onshore power plant, to generate lower cost, cleaner, more reliable energy, for the benefit of the people on it. That project is in the design phase right now. And once it’s done, then we’ll share the details of the project after sanction,” Hill reported on the gas to shore project. Government has said that it expects to receive a guaranteed minimum of 50mmscfd of gas by 2024 from the 12 inch pipeline from the Liza area, which will have a capacity of up to 130 mmscfd. The net potential power from the project is estimated to be around 150MW to 250MW.
Key
Meanwhile, Hill, along with the company’s Chief Executive Officer John B. Hess, Vice President, Investor Relations Jay R. Wilson and Executive Vice President and Chief Financial Officer John Reilly were bullish on the Guyana investment and operations. “Guyana is our growth engine and is on track to become a significant cash engine in the coming years, as multiple phases of low-cost oil developments come online,” John Hess said as he reported on the progress of operations and executing of the company’s strategy.
“Key to our long-term strategy is Guyana, one of the industry’s best investments,” he added. By 2022 Hess Guyana hopes to invest a total of US$1 billion. For 2021, Hess said he had anticipated an investment of US$780 million but boasted that figure is likely to be below by US$30 million. “So, with Liza Phase 2 and the continued development on Payara and (we) will begin spending on Yellowtail, we think it’s approximately [US]$1 billion will be the Guyana capital for the developments next year, so approximately again another [US]$250 million there.”
“…But I have to remind everyone, we will have Phase 2 coming online. And so, I’ll just do — I always do that simple math if when Liza Phase 2 comes on in full and we have our share of 220,000 barrels of oil per day. We’re basically — and I’m just going to use a [US]$60 Brent price and about a [US]$10 cash costs, we pick up a [US]$1 billion of additional cash flow from Liza Phase 2 alone when that comes on. And then, obviously, you have Payara and Yellowtail, so we’ll get much more cash flow as each FPSO comes. So that’s a directional, we will update in January,” he added. Pointing to the Yellowtail project, Hess said that investment costs will be higher but only because the project is bigger. However, the return on the investment here is the best in the industry.
“I think everybody needs to realize this FPSO is going to have capacity of approximately 250,000 barrels of oil per day on a gross basis. It will be our largest oil development to date in Guyana while its cost will be higher. The resource we are developing is significantly higher and this development has simply outstanding financial returns, some of the best in the industry as Greg mentioned, and a breakeven cost between [US]$25 and [US]$32 per barrel Brent. So its outstanding economics. Yes, the costs are higher, but the resource we’re recovering is much higher and these are some of the best economics in the industry,” Hess said.
Giving an overview of the Guyana operations for this quarter, Hill repeated much of what was said by partner ExxonMobil but focused on what that all means for Hess. He pointed out that this quarter, gross production from Liza Phase 1 averaged 124,000 barrels of oil per day or 32,000 barrels of oil per day net to Hess. From operations, Hess sold three 1 million barrel cargoes of oil in the third quarter, up from two 1 million barrel cargoes of oil sold in the second quarter. For the third quarter, their E&P sales volumes were under lifted, compared with production by approximately 175,000 barrels, which had an insignificant impact on the company’s after-tax results for the quarter. During the fourth quarter, Hess anticipates selling two 1 million barrel cargoes of oil. Replacement of the flash gas compression system on the Liza Destiny with a modified design is planned for the fourth quarter and production optimization work is now planned to take place in the first quarter of 2022. “These two projects are expected to result in higher production capacity and reliability. Net production from Liza Phase 1 is forecast to average approximately 30,000 barrels of oil per day in the fourth quarter and for the full year 2021. Liza Phase 2 development will utilize the 220,000 barrels of oil per day on Unity FPSO, which arrived in Guyana Monday evening. Next steps will be more inline installation and umbilical and riser hook up. First oil remains on track for first quarter 2022,” he said.
Turning to the third development at Payara, Hill said that the hull for the Prosperity FPSO vessel entered the Keppel yard in Singapore on August 1st. “Topside fabrication of dynamic and development drilling are underway. The overall project is approximately 60% complete,” he informed. The Prosperity will have a gross production capacity of 220,000 barrels of oil per day, and is on track to achieve first oil in 2024. Exploration and appraisal activities in the fourth quarter will include drilling and exploration at wells located approximately 11 miles northwest of Liza 1 while appraisal activities will include drill-stem tests at Longtail 2 and Whiptail 2 as well as drilling the Tripletail 2 well.
“These discoveries will underpin our Q (quarter), our future low cost oil development. We see the potential for at least six FPSOs on the Stabroek Block producing more than 1 million gross barrels of oil per day in 2027, and up to 10 FPSOs to develop the discovered resources on the block. On October 7th, the gross discovered recoverable resource estimate for the block was increased to approximately 10 billion barrels of oil equivalent, up from the previous estimate of more than 9 billion barrels of oil equivalent. “And we continue to see multibillion barrels of future exploration potential remaining,” Hess said.
