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Guyana oil reserves now exceed 4 billion barrels; daily estimated production to hit 700,000 – Wood Mack

June 27, 2018

UK-based industry analyst, Wood Mackenzie, says the most recent oil discovery made by ExxonMobil in Guyana could push daily production to 700,000 barrels of oil per day by 2027 while estimating total recoverable reserves in the Stabroek Block to now stand at more than 4 billion barrels.

Ruaraidh Montgomery is a Senior Corporate Research Analyst with over nine years’ experience at Wood Mackenzie.
The projections were made during Wood Mackenzie’s corporate weekly podcast published on June 25. Commenting on what ExxonMobil’s 8th discovery at Longtail-1 means for Guyana, Senior Corporate Research Analyst, Ruaraidh Montgomery, said, “This series of discoveries is going to be truly transformational for the country. So to date we estimate that Exxon and its partners have found over 4 billion barrels of oil…In our base case model that’s going to deliver almost 700,000 barrels a day of oil at peak in around 2027 and there is tremendous running room for further finds to be made not just on Exxon acreage but on other blocks in the area.”

ExxonMobil Guyana has said assessments of the discoveries are still ongoing and an updated resource estimate for the Stabroek Block is yet to be determined.

Challenges

Montgomery pointed out that as production moves into high gear in Guyana, ExxonMobil and its partners, Hess and CNOOC Nexen, will begin to face development challenges. “These discoveries have significant volumes of associated gas and the initial solution for that gas is to reinject it into reservoirs but as they ramp up production they are going to possibly need to find alternative uses for that gas,” he said.

The Guyana government is actively pursuing discussions with ExxonMobil to pipe gas to shore, primarily for the generation of low-cost electricity. Speaking to OilNOW in April, the company’s Senior Director, Public and Government Affairs, Kimberly Brasington, said such an undertaking would be a ‘stand-alone’ project separate from the Liza Phase 1 development targeting oil production to begin in 2020. “The Petroleum Agreement does have articles that address the use of natural gas similar to how it addresses the sale of petroleum and so if we do decide to bring some of the associated natural gas to shore that would actually be a standalone project…completely separate from the FPSO and the development of the Liza field, where we are going to produce oil,” she stated.

The Wood Mack Analyst said building the infrastructure needed to service the development of the oil discoveries is another challenge that must be addressed. “So I am referring to stuff like the harbor facilities that are needed to accommodate all the equipment and to service the supply boats that you will often need and to ensure that this oil actually gets produced and then of course Guyana is in a relatively remote location on the north east coast o

ok Epiphany. Thanks for your comments. Fernan

chilting: I haven�t posted any false fact. I only made my conclusions based on the production profile published by management. Regards Fernan

Hi Epiphany. I submited the production profile as presented by Enquest management (a little dated, yes, but, to my knowledge, the only one available from the company up to now). You need to adjust the year 1 of the chart, taking 2017 instead of 2016. So you said that the chart made by "Nodding Donkeys" is more accurate that the one made by Enquest�s management?

Here is the link: See page 35 of the presentation http://www.enquest.com/~/media/Files/E/Enquest/reports-and-presentations/CMD%20-%2013%2011%2014%20Final.pdf Regards

I have never said I�m an engineer Regards

SmokinAces: be my guest. You can read Enquest�s Capital Market Day�s presentation on November 15, 2013. Page 35. Good luck.

Hi MO. Beggining next year, you probably need to take into account Kraken production declines in your production forecasts. According to Enquest�s December 2013 presentation (page 35) Kraken goes from aprox. 54.000 bopd gross production in year 2 to aprox. 27.000 bopd gross production in year 5. A decline of around 9.000 bopd per year on average (6.300 bopd net to Enquest). From 2019 on, Enquest will nee to add more than 10.000 bopd of new production annually just to offset the declines. Just my oppinion Fernan

Hi SmokinAces. I tried to understand the reasons why ENQ is undervalued (because I do think is undervalued). Apart from that, I would like to know other opinnions about these production issues. I understand this type of forums are for. Fernan

In addition to my previous comments of Alma Galia, I noted that gross production from the Galia well in February was 349 bopd. It�s down 95% from initial production of around 7.000 bopd. See December 8, 2015 press release: "The Galia well was also brought onstream in the second half of November and this well alone has produced approximately seven thousand barrels per day gross since late November." I think that a 95% decline in less than 2 and a half years deserves a good explanation from management. So far I havent read any I would like to hear what are the issues with this well in the next conference call. Comments? Fernan

Hi Matrix. Don�t be so optimist about Alma Galia Because of the terms of farm out agreement with the kuwaities, 50% of revenues (net of operating costs) will be assigned to them, as part of the "cost recovery provision" clause (see note 22 to financial statements for 2017) Speaking about the kuwaities, they invested US$ 500 millon in the project, just to receive a mere 500 boepd by the time being. I bet they are not happy with AB The problem with Alma Galia is that the project was the poster child of Enquest core strategy of revitalizing ageing fields in the North Sea. A failure here has put a question mark around the vialibility of the company. hence the lack of significant institutional investors in the shareholder list. Regarding a potential write down of reserves assigned to the project, management said the following in the 2017 Annual results press release: "The slight reduction in reserves was driven by some changes in long-term assumptions combined with lower production performance in the North Sea, largely offset by the benefit of the acquisition of an initial 25% equity interest in Magnus and better production performance in Malaysia." AB said that they dont talk about reserves for any particular project. I wouldnt be surprised to know that part of the reduction is attributed to Alma Galia For all those reasons, they need to show an important recovery in production numbers after the workovers planned for this summer. Just my oppinion Fernan

I know there are some workovers planned for next summer. But still, current production is dismal... 1.100 bopd net to Enquest in February....equivalent to gross production of 1.700 boepd... It was supposed to produce 20.000 bopd at peak.... I understand that gross CAPEX was around US$ 850 millon.... what a waste of capital I would say

ok MO thanks Fernan

Hi MO do you have a link for January production numbers? Thanks in advance Fernan

Management has guided for this year unit OPEX of us$ 24/b and CAPEX of US$ 250 millon I would like to know if payments for the leasing of the Kraken FPSO are included in either of these numbers. My guess is that they are not. I asked the company in writing about this but had no answer. According to the balance sheet, current liabilities (to be paid during the next 12 months) in relation to this item worth US$ 118.009.000 So, in order to calcule a "true" free cash for this year, this number should be included, in addition to the amount of CAPEX announced by the company. Comments? Fernan

My point is that the first exploration well in the Cooper license is not entirely for free. You can see the detail of exploration activities and company�s share of expenditure in page 8 of the MD&A report for Q3. Of course, after the investiment made by Africa OIl, Eco has the funds to cover this obligation. Regards Fernan

Given the uncertainty created by this condition, in my oppinion the deal currently represents the following: - for current shareholders, the deal is a free option on a potentially highly accretive transaction - for new entrants that are goint to pay a higher share price because of the deal, there is a risk of the transaction not being ultimately executed, because of the inability of Serica to get a license to operate the Rhum field from the Trump administration. Just my oppinion Fernan

Some posters here assumed that ECO has no obligation in relation to the upcoming well in the Copper license. In reality, ECO will have to pay a minimum contribution of US$ 2,25 millon in order to cover driling expenses. See Q2 2017 MD&A report, page 8: "The Tullow Agreement was amended on February 1, 2017 (the �Tullow Amended Farmout Agreement�). Pursuant to the Tullow Amended Farmout Agreement, if Tullow elects to proceed into the second renewal exploration period or commits to drill an exploration well on the Cooper License before such time, Tullow will acquire from the Company and Azinam an additional 15%working interest in the Cooper License and become the Operator of the Cooper License. In addition, subject to a minimum contribution of US $2.25 million by the Company, Tullow will carry the Company in respect of the Company�s share of any drill costs in relation to the first exploration well (if proposed and drilled by Tullow) up to a total well cost of US $35 million. In addition, Tullow will reimburse the Company for 17.14% of all past costs incurred and paid for by the Company in respect of the Cooper License (save for any costs already reimbursed, paid or carried by AziNam or Tullow). If Tullow elects not to proceed into the second renewal exploration period, then it will be deemed to have transferred back to the Company its entire 25% working interest and will remain obliged to carry the Company in respect of: (i) the Company�s working interest share of the costs, which the Company has agreed to participate in and which were approved by the operating committee and the parties to the Cooper JOA ; and (ii) the seismic carry (to the same extent Tullow would have been liable for had it not elected to transfer its working interest)." I sento an email to the CEO, in order for them to clarify the point in future company�s presentations. Regards Fernan

The ball now lies in the court of the U.S. Congress, which will decide next month whether to reimpose economic sanctions on Tehran that were lifted under the agreement. �A snap-back of U.S sanctions is a risk,� Walker said. �But it does not necessarily impact our operations in Rhum unless the European Union and UK also implement a snap-back and there is no indication that this is likely to occur.� Serica board member Jeffrey Harris, a U.S. citizen, stepped down in order to guarantee it does not violate U.S. sanctions still in place that ban Americans from dealing with Iran. Serica hopes to complete the acquisition of the Bruce, Keith and Rhum fields from BP by mid-2018. The deal will increase its production to around 21,000 barrels of oil equivalent per day, of which around 85 percent is gas. Serica and its partner, Iranian Oil Company, plan to renew drilling of a third well at the Rhum field next year, Walker said. After being forced to shut down in 2010 when Western nations imposed sanctions on Tehran over its nuclear program, Rhum resumed production in 2013 when Britain agreed to set up a temporary management scheme whereby all revenue due to Tehran would be held until sanctions were lifted. Following the removal of European Union and United Nations sanctions on Iran in January 2016, the temporary management scheme ceased but BP still obtained an OFAC licence.

According to TCW, Serica is required to get a license to operate the Rhum field (to be issued by the US government) as a condition of the transaction with BP See today�s artlce in Reuters A BP North Sea field to test U.S. policy on Iran LONDON (Reuters) - A small gas field on the edge of the British North Sea could become a litmus test for U.S. policy towards Iran. London-based BP this week agreed to sell to North Sea producer Serica Energy three fields in the ageing offshore basin, including the Rhum field which is co-owned by a subsidiary of Iran�s national oil company. For Serica, the $400 million deal will increase its production sevenfold. It nevertheless hinges on the British company receiving a licence from U.S. sanctions enforcement authorities at a time when President Donald Trump is flexing his muscles against Tehran. For BP and its American Chief Executive Bob Dudley, selling Rhum, which BP discovered in the 1970s, removes a potential source of friction as it mends its ties with the U.S. government following the deadly 2010 Deepwater Horizon spill in the Gulf of Mexico. Rhum was shut down for most of the first half of the decade due to western sanctions on Tehran before resuming normal operations in 2016 following a landmark nuclear deal between Iran and the world�s top powers Because of the Iranian involvement, BP needs a licence from the U.S. Treasury�s sanctions enforcement arm - the Office of Foreign Asset Control (OFAC) - allowing U.S. nationals and companies to take part in the field�s operations. The licence was renewed in September, a month before Trump sought to reverse the U.S. position on the nuclear deal with Iran. Serica will apply for its own licence in the coming months, Tony Craven Walker, Serica�s Executive Chairman, told Reuters. �Getting an OFAC licence for Serica to assume operatorship of Rhum is part of the conditions of the transaction with BP,� Walker said. OFAC did not immediately respond to a request for comment. BP, founded more than a century ago as the Anglo-Persian oil company, will lobby the British government to lend its support in requesting the U.S. administration to grant the licence to Serica, according to a source at BP. Though not a prerequisite to operate the field, the licence is needed as a back-up in case of an emergency that requires U.S. equipment and companies, Walker said. �Given the nature of the operations and our intentions to meet the same obligations as BP we don�t foresee any reason for the licence not to be granted,� Walker said. France�s Total, which recently opened an office in Washington, is also closely monitoring the U.S. position on Iran which could decide the fate of its plans to develop a huge offshore gas field in Iran. SNAP-BACK Things could change quickly after Trump�s decision in October not to certify that Tehran is complying with the