• Saturday, March 02, 2024
businessday logo

BusinessDay

Guyana boom dims ExxonMobil’s interest in Nigeria’s messy oil sector

Guyana boom dims ExxonMobil’s interest in Nigeria’s messy oil sector

In October 2016, American oil giant, ExxonMobil announced a potential 1billion barrels oil find at the Owowo-3 field which spans portions of the contract areas of Oil Prospecting License 223 (OPL 223) and Oil Mining License 139 (OML 139), inspiring hopes for more investments into Nigeria.

The well was drilled by ExxonMobil affiliate Esso Exploration and Production Nigeria (Deepwater Ventures) Limited, and proved additional resources in deeper reservoirs. The excitement in Nigeria, though was muted. Lawmakers were still considering a version of the Petroleum Industry Act, there were still cases of sabotago of oil infrastructure, insecurity was pervasive and Buhari was president, so policy making, was generally tepid, almost desultory.

Analysts told BusinessDay that they expected the Owowo field development to commence by 2020 or 2021. Ofcourse, no one saw COVID coming. Crude theft was challenge but it has since morphed into nightmare. Six years after the discovery, ExxonMobil is yet to announce a definate date for its development. A tentative date of 2026 has been set but industry operators say it’s illusory.

However, ExxonMobil is investing a pile of money into a former British sugar colony, Guyana, squeezed between Venezuela, Brazil and Suriname at the northern end of South America. The country’s economy once dependent on agriculture and mining, has been transformed with petro-dollars after a chance offshore oil discovery by ExxonMobil in 2015. Guyana has since become a lucrative new global frontier for crude oil prospecting.

Just one year after the Owowo field discovery in Nigeria, ExxonMobil announced plans to develop its first drilling operation in the Liza deep water oilfield on the Stabroek Block, 120-miles offshore from the Guyanese capital Georgetown after reporting discovery of up to 2.6 billion barrels of oil equivalent.

Since then, the US oil giant has gone on to confirm over 15 additional discoveries in the depths offshore Guyana, started second phase of development of the Liza fields, raising oil reserve estimates for the region to more than 10 billion barrels. For context, Nigeria’s total proven oil reserve is 36 billion barrels though exploration began in the 1956.

Read also: ExxonMobil asset sale setback mirrors Chevron’s in 2017

ExxonMobil’s success has attracted other exploration companies including Spain’s Repsol, US-based Hess, UK-based Tullow Oil and Chinese National Offshore Oil Corporation among others.

Exxon began first oil production at the Liza field in December 2019, saying the operation would be up to speed at its full 120,000 barrels per day (bpd) capacity within a matter of months. The oil major now expects capacity from the Stabroek Block to hit 750,000 bpd by 2025.

ExxonMobil’s net acreage in Guyana totaled 4.6 million offshore acres at year-end 2021. During the year, a total of 11 net exploration and development wells were completed. Development activities continued on the Liza Phase 2 and Payara projects.

Meanwhile, investment into projects in Nigeria has been few and far between. The Bonga oil developments have stalled for several years. The company like other operators are bemoaning crude theft that has morphed into organised crime with government officials, local community and security officials fingered to be involved in the massive theft of crude oil in the Niger Delta while the government feigns ignorance.

Regulatory and fiscal challenges add to the woes. ExxonMobil is involved in legal entanglements with the Nigerian oil company, the NNPC over a crude oil lifting entitlements dispute that went into arbitration in 2011. Exxon Nigerian unit in February sold its shares to local operator Seplat, but the deal was scuttled by the NNPC, whose GMD spends half his time persuading IOCs to invest in Nigeria.

Given these myriads of challenges, there is no prize for guessing where the investments dollar would go. Guyana developed a smarter strategy to engage with oil companies considering its complex terrain and difficulty prospecting for oil. It balanced its rights as a soverign with the reality of the global oil market and granted generous concessions to the oil companies who would assume the risk of production.

Critics have said that Exxon cheated the country by leaving it 52 percent of the returns from developing its oil but half of a thriving industry is better than owning 100 percent of a ramshackle sector. This year, analysts at Rystad energy estimates that Guyana is on course to earn $1billion from its oil sector and could rise to $7.5 billion annually in 2030.

The recent spate of prolific discoveries and the steady pace of FIDs position the Guyanese government to reap the rewards of these finds with cumulative revenues totaling $157 billion by 2040 according to analysts at Rystad Energy.

Guyana is now the global leader in total offshore discoveries since 2015, with 11.2 billion barrels of oil equivalent, amounting to 18 percent of discovered resources and 32 percent of discovered oil. Of the total, a whopping 9.6 billion barrels are oil, far outpacing the US in second place with a comparatively small 2.8 billion barrels. The Stabroek block accounts for all of these finds, but recent discoveries in other areas show the potential for growth elsewhere.

Guyana is forecasted to produce 1.7 million barrels per day (bpd) of oil by 2035 – not accounting for as-yet undiscovered volumes – propelling the country to the fourth position on the list of the largest global offshore oil producers, leapfrogging the US, Mexico and Norway.

“Guyana is just starting to extract and monetize its vast resource wealth, and the coming years will be a financial windfall for the Georgetown government. The country has played the long game after several decades of elusive exploration. The country’s offshore production is finally ready to take off,” says Schreiner Parker, senior vice president and head of Latin America and the Caribbean.