Rystad Energy analyzed the production ramp-up time for the producing FPSO projects on Stabroek compared with major FPSO projects in Brazil that started between 2019 and this year. The recent Prosperity project, which started producing in December last year, stands out as the best-performing among all the analyzed FPSO projects, reaching full capacity in just three months. In comparison, the Unity project took six months and the Destiny project 13 months to achieve full capacity. Brazil's average ramp-up time to reach FPSO capacity levels is 16 months.

Guyana ranks as the fourth-largest country in Latin America for oil and gas investments during this decade, following major players Brazil, Mexico and Argentina, the last of which focuses to a large degree on unconventional resources. The country is projected to see $77 billion in investment between 2019 and 2028. Of the total planned investments, nearly 62%, or $47 billion, will be allocated to development expenditure, encompassing facility infrastructure, logistics and the gas and power sectors.

Investments in the six sanctioned FPSO projects are projected to reach $52 billion from 2017 to 2030. The development cost per boe represents the amount spent during the greenfield phase to produce one barrel. For the Destiny and Unity projects, this cost stands at $3.9 and $7.2 per boe, respectively; however, this does not include FPSO capitalization costs. Destiny’s costs are relatively low compared to the other five FPSO projects. The reason is the estimated ultimate recovery (EUR) of the Destiny project stands at 70 million boe, which is 75% higher than the average EUR of the remaining projects, which is 40 million boe. Additionally, Destiny is the sole FPSO project that is a converted unit rather than a newbuild, significantly reducing upfront costs.

The average development cost per boe for FPSO projects in Guyana is $7.9, which is higher than Brazil's average cost of $5.4 per boe. This difference is primarily due to Brazil expecting more than 30 FPSOs to come online between 2019 and 2028, with nearly 50% being converted FPSOs and the other half newbuilds. Converted FPSOs generally have lower upfront costs and smaller capacities compared to those in Guyana. In Guyana, all FPSOs except the Destiny FPSO are newbuilds, resulting in higher costs. Despite this, Guyana beats the global average development cost for FPSO projects starting up between 2019 and 2028, which stands at $13 per boe.

ExxonMobil in Guyana

Following the discovery of the field Liza in 2015, Guyana forms a key component of ExxonMobil’s portfolio. The US major is currently spending around 20% of its total exploration and production (E&P) investments on Guyana and is estimated to exceed $4 billion this year, with projected cumulative investments of about $30 billion by 2030, with excellent investment returns in the medium and long term. ExxonMobil is expected to invest around $5 billion on its Liza field between 2018 and 2030, with expected free cash flow (FCF) of around $12 billion during the period. This would mean ExxonMobil is earning around 2.4 times every US dollar of capital expenditure (capex) spent between 2018 and 2030. This exceeds what the major earns per US dollar in the core US shale patches of the Bakken, Permian Midland and Permian Delaware, where the FCF per dollar of capex invested during the same period is 2, 0.74 and 0.5 times, respectively. Hence, ExxonMobil’s Guyana projects outperform others in the Americas and rank among the best globally.

One reason Guyanese projects yield high returns is the extremely low breakeven prices below $30 per barrel, as opposed to US shale, where the average breakeven oil price lies somewhere between $30 and $35 per barrel. The Liza project, where the Destiny and Unity FPSOs have already started production, has a breakeven oil price of $17 per barrel, as opposed to ExxonMobil’s US projects, where a breakeven below $30 per barrel is rare.

The fiscal regimes in the US and Guyana play an important role. In Guyana’s Stabroek Block, where all the country’s major discoveries have been made, the profit-sharing contract model sees the government take 50% of profit oil, but only a minimal 2% royalty is applicable on oil production and zero corporate income tax. In the US, royalty oil goes as high as 20% for the projects compared above. Also, unlike Guyana, multiple taxes such as production tax, state corporate tax and federal corporate tax are levied in the US, while corporate income tax can go as high as 21%.

Guyana’s government also allows an annual cost recovery of 75% on revenues in the Stabroek block. This means companies can offset 75% of their revenues against investments made in the Stabroek Block for that year. So, while ExxonMobil is gaining revenues from Liza’s production, the company can offset a significant part of it by investing in other projects in Stabroek, such as Yellowtail, Whiptail and Uaru. The cost ceiling has been reduced to 65% in the newly awarded blocks.

Guyanese wells have also exhibited excellent EURs, with the Liza field having an average EUR of 57 million boe per well, partly driven by the deepwater discoveries’ excellent reservoir properties and partly by the re-injection of produced gas volumes. Furthermore, new and improved well technology, along with strategic placement of wells, plays a pivotal role. Also of note is the way in which ExxonMobil is capitalizing its FPSO costs. The company uses the buy-operate-transfer (BOT) model and leases the FPSOs initially, and after the field starts producing and is making profits, it buys the unit. This spreads out capital costs over a longer duration, making cost recovery more efficient.

Unlike shale fields in the US, where continuous investments are required throughout the field's life, deepwater Guyanese assets may require substantial financial commitments in the greenfield stage. However, operating expenditures (OPEX) and maintenance capex dominate during the brownfield phase.

Even in terms of internal rates (IRR) of return, Guyana stands out as competitive in ExxonMobil’s portfolio. With IRRs as high as 44%, Guyana’s Liza project closely competes with the Permian Midland in the US at 44% IRR and the Permian Delaware at 53% IRR. The higher NPV in US projects is due to higher resources compared to ExxonMobil’s other projects.

Guyana continues to be an extremely competitive country in ExxonMobil’s portfolio, with a breakeven oil price below $30 per barrel even as cumulative investments rise as high as $25 billion. Almost all the investments expected to be made in Guyana from 2018 to 2030 are considered low to medium risk. Guyana surpasses even the US in profitability with $17 billion to $18 billion of cumulative investments.

The ability of Guyana to maintain its cost competitiveness despite an expected drop in future Brent crude prices makes it stand out globally in the upstream sector. The country’s low breakeven prices, high EURs and its fiscal regime are expected to maintain incoming investments at a high level. The government is trying hard to maintain growth by awarding new blocks and providing attractive investment terms. However, if Guyana fails to unearth more discoveries of the size of those made on Stabroek and away from that block, it will struggle to sustain the momentum for decades.

Authors: 

Vadranam Sai Krishna

Analyst, E&P Research
vadranam.krishna@rystadenergy.com

Avnika Pandita

Analyst, E&P Research
avnika.pandita@rystadenergy.com

Rimal Bhat

Analyst, Upstream Research
rimal.bhat@rystadenergy.com

(The data and/or forecasts in this column are Rystad Energy’s, and the opinions are of the authors.)