Hess Corporation, one of the co-venturers in the Stabroek Block, is keeping its eyes on Guyana as a low-cost supplier of oil, saying that global projections show that the world needs just under 50 percent oil and gas in an energy mix up to another 30 years by when the cost of renewable energy is expected to fall.
Chief Executive Officer of Hess Corporation, John Hess noted that the just published 2020 World Energy Outlook by the International Energy Agency (IEA) provides an aggressive sustainable development scenario in which if all the pledges of the Paris Climate Agreement are met, oil and gas would still be 46% of the energy mix in 2040.
“While we need policies to encourage renewable energy to battle climate change, oil and gas will be needed for many decades to come and will continue to be fundamental to world economic growth and human prosperity,” he told a third quarter 2020 earnings call on Wednesday.
Against that background, he noted that Guyana’s oil exploration and production activities in the Stabroek Block were among the low-cost operations; the others being Bakken in North Dakota, United States; deepwater Gulf of Mexico and South-east Asia. Mr. Hess praised ExxonMobil, the majority stakeholder and operator in the Stabroek Block. He said together, they would drive Hess Corp.’s breakeven price to under US$40 per barrel Brent by mid-decade.
The Hess CEO singled out Guyana as being pivotal in a three-pronged long-term strategy to manage the short-term challenges. “In terms of preserving the long-term value of our assets, Guyana, with its low cost of supply and industry-leading financial returns, remains our top priority,” he said. Mr. Hess said his company was very pleased that on September 30, the Guyana government approved the development plan for the Payara Field, the third oil development on the Stabroek Block, where Hess has a 30% interest and ExxonMobil is the operator.
Projections are that Payara is targeted for first oil in 2024 and the consortium, which also included China National Oil Corporation, expects to have at least five Floating Production, Storage and Offloading (FPSOs) vessels on the block producing more than 750,000 gross barrels of oil per day by 2026. The Hess CEO said the three-sanctioned oil developments, Liza-1, which is producing and Liza-2 in Payara, which are in construction, have breakeven Brent oil prices of between $25 and $35 per barrel, which are world-class by any measure.
Hess’ Executive Vice President and Chief Financial Officer, John P. Rielly, in expressing satisfaction with ExxonMobil’s “great” performance as the operator on the Stabroek Block, for coming in under budget, said all the costs, contingencies and pre-sanctioned costs for Payara and the expected cost for the FPSO puts the calculation of a break-even price of US$32 Brent. “So this truly is a world-class asset and adds to obviously then will be the third project in Guyana and we’re looking forward to doing the next project,” he said. Mr. Rielly forecasts that costs for greater Yellowtail area would be lower than Payara, with a probably breakeven price of between US$25 and US$32.
When the Payara Field is fully developed and connected to the FPSO, Prosperity, production is expected to be 220,000 gross barrels of oil per day from 2024 from a network of 10 drill centers with 41 wells, including 20 production wells and 21 injection wells.
Reflecting on gross production from Liza Phase 1 during July to September, 2020, Hess’ President and Chief Operating Officer, Gregory P. Hill said gross production averaged 63,000 barrels of oil per day or 19,000 barrels of oil per day net to Hess. He noted that ongoing work to complete commissioning of the natural gas injection system continues and once complete would enable the FPSO, Liza Destiny, to reach its target of 120,000 gross barrels of oil per day in December. “It is important to note that the delays in commissioning the gas injection system are mechanical in nature and the reservoirs and wells continued to deliver at or above expectations,”Mr. Hill said.
Redtail and and Yellowtail-2 discoveries in early September, 2020 have brought the total number of discoveries to 18, and an increase in the gross discovered recoverable resources for the Stabroek Block to approximately 9 billion barrels of oil equivalent and the need for 10 FPSOs to develop the current discovered recoverable resource base.
ExxonMobil is currently exploring for more hydrocarbons in the Tanager-1 well on the Kaieteur Block, approximately 46 miles northwest of Liza to be followed by Hess-1 on the Stabroek Block approximately 30 miles east of the Liza Field.
The Hess President and Chief Operating Officer said the Stabroek Block of 6.6 million acres or 1,150 Gulf of Mexico Blocks, is “so unique” because more than 9 billion barrels of oil and gas resources have been found from that world-class reservoir, with multi-billion barrels of exploration potential remaining. He added that the Stabroek Block’s world-class reservoir quality with exceptional permeability and porosity that results in high flow rates and high recovery factors. the reservoirs are shallow and there is no salt, that allows for drilling wells in a fraction of the time and cost of other deepwater basins. He added that there is a production sharing contract with the competitive cost recovery mechanism, and the development is occurring at the bottom of the offshore cost cycle. He said the first three developments have industry-leading Brent breakeven prices of between $25 and $35 per barrel. “For all these reasons, Guyana will create extraordinary long-term value for our shareholders and for the citizens of Guyana,” he said.