By Matthew Smith - Jul 27, 2023
Brazil, with 14.9 billion barrels of proven reserves, is aiming to boost oil output to 5.4 million barrels per day by 2029, potentially becoming the world's fourth-largest oil producer.
Guyana, following a series of discoveries by Exxon since 2015, is becoming an increasingly important player in the global oil sector, currently producing around 400,000 barrels per day.
Latin America's oil sector, led by Brazil and Guyana, is projected to expand significantly over the next decade.
The near collapse of Venezuela’s once colossal oil industry under the weight of endemic corruption‚ and strict U.S. sanctions, along with Mexico’s sputtering mature oil fields, saw Latin America’s economically crucial hydrocarbon sector fall into decline. By 2020, Venezuela’s oil output had crashed to an all-time annual low of 569,000 barrels per day, while Mexico’s sputtering aging oilfields pumped less than 1.7 million barrels daily. Then a series of world-class offshore discoveries in Brazil’s territorial waters captured the attention of energy supermajors and put Latin America back on the world hydrocarbon map. That was followed by Exxon’s world-class offshore discoveries in Guyana, which put the tiny South American on track to become a leading global petroleum producer and exporter. These events see Latin America poised once again to become a global hydrocarbon powerhouse once again.
Brazil’s national oil company Petrobras made the first offshore deepwater pre-salt oil discovery in the Santos Basin in 2006, with the first oil being pumped a mere two years later. Those vast pre-salt reservoirs continue to deliver major world-class discoveries which have endowed Brazil, according to data from the regulator, the National Agency of Petroleum, Natural Gas and Biofuels, with 14.9 billion barrels of proven or 1P reserves. This now sees Brazil holding the second largest oil reserves in Latin America after Venezuela and ranked 16th globally. Those impressive oil reserves, along with ongoing discoveries, are sustaining Brazil’s epic offshore petroleum boom. There are clear indications Brazil’s hydrocarbon reserves and production will continue to expand.
The Ministry of Mines and Energy is targeting significant production growth. The ministry is doing this by implementing strategies to develop existing basins and lift output to 5.4 million barrels per day by 2029. If that ambitious target is achieved, it will make Brazil the world’s fourth-largest oil producer. For May 2023, Brazil pumped an average of 3.2 million barrels per day, which was an impressive 11% greater than the equivalent period a year earlier. Total hydrocarbon output was 4.1 million barrels of oil equivalent per day for May 2023, a notable 9% higher year over year. While Brazil’s hydrocarbon production is growing at a steady clip, there is still a significant way to go before the country is lifting more than 5 million barrels per day with 80% flowing from the pre-salt layer.
It will take a considerable investment in developing Brazil’s offshore hydrocarbon basins to lift production to the targeted volume. Petrobras, as part of its 2023 to 2027 strategic plan, has allocated $64 billion to developing exploration and production assets, with 67% of that amount to be invested in pre-salt operations. By 2027, Petrobras envisages lifting 2.5 million barrels of oil per day and another 600,000 barrels of natural gas, seeing the company pump 3.1 million barrels of oil equivalent per day, with 78% being sourced from pre-salt fields.
Brazil’s booming oil production is an important economic driver for Brazil. By 2012 Petrobras had become a key government policy tool seeing it emerge as the world’s most indebted oil company with the administration of President Dilma Rousseff looting its coffers to fund social programs and other policy initiatives. After a massive corruption scandal involving Petrobras and construction firm Odebrecht rippled through Brazil, eventually claiming Rousseff’s scalp, Petrobras was set on a more independent pro-business footing by her successor Michel Temer with that approach continued by his successor Jair Bolsonaro. There are fears that the return of Luiz Inácio Lula da Silva, known as Lula, to the presidency, will lead to further heavy-handed government intervention.
It isn’t only Brazil which has brought the spotlight back on Latin America’s oil industry. Neighboring Guyana is following in the footsteps of Latin America’s largest oil producer after global energy supermajor Exxon discovered oil in the former British colony’s territorial waters in 2015. Since that discovery in the Stabroek Block, Guyana has emerged as what is being called the world’s hottest offshore frontier oil play. More than 35 discoveries have endowed the impoverished country of around 800,000 people with over 11 billion barrels of oil. The Exxon led consortium’s accelerated development of the Stabroek Block, with it taking four years to go from the first discovery to first oil, sees Guyana pumping around 400,000 barrels per day.
Georgetown plans to auction 14 blocks during 2023, although for the third time, it has been delayed until mid-August 2023 so the government can finalize changes to the regulatory framework. Those reforms include introducing a new Production Sharing Agreement (PSA), which will increase the royalty from 2% to 10%, reduce the cost recovery limit from 75% to 65% and introduce a 10% corporate tax. While those terms are less advantageous than those secured by Exxon for the Stabroek Block, they are still competitive compared to other countries in the region.
Guyana’s first-ever oil auction is intended to reduce the country’s dependence on Exxon. It will do this by attracting other petroleum explorers and producers to the South American country’s territorial waters. Given the considerable petroleum potential believed to exist in Guyana’s shallow water and deepwater blocks, further oil discoveries are only a matter of time. Analysts estimate Guyana will be lifting 1.2 million barrels per day by the end of 2027, making the former British colony become a leading global oil exporter. This is delivering a mega economic boom for Guyana, which will have the fastest growing economy during 2023, with gross domestic product forecast by the IMF to expand by 37.2%.
There are signs that Latin America's hydrocarbon sector will expand substantially over the next decade despite heightened geopolitical risk, the clean energy transition and looming peak oil demand. Venezuela’s oil output is growing because of assistance from Iran while U.S. sanctions are being loosened with supermajor Chevron permitted to lift oil in the crisis-riven country. Argentina is undergoing an onshore unconventional hydrocarbon boom as the Vaca Muerta shale body is developed. While those will boost hydrocarbon production in Latin America and the Caribbean, it is Brazil and Guyana which are driving the massive explosion in oil production expected in the region. Those two countries alone will add up to 3 million barrels per day to Latin America and the Caribbean’s oil output, but that will occur at a time when petroleum prices are under pressure from falling global demand due to the clean energy transition. That makes it a race against time for oil producers in the region to exploit their hydrocarbon wealth.
The Oil Eldorado: Guyana's Stabroek Block Surpasses Analyst Expectations
By Matthew Smith - Jul 26, 2023
Oil estimates for the Guyana Suriname Basin, particularly Guyana's Stabroek Block, are being revised upwards, with Exxon's 35 discoveries believed to contain over 11 billion barrels of oil.
Various oil discoveries in both Guyana and Suriname indicate the presence of up to 32 billion barrels of oil resources in the basin, a number that is likely to grow as exploration and development operations escalate.
The surge in oil resources is attracting foreign energy companies and investment, fueling what is projected to become South America's largest oil boom and promising significant economic benefits for Guyana and Suriname.
Tiny South American country Guyana, which has a population of less than one million, recently emerged as the world’s hottest offshore frontier drilling location. After Exxon’s slew of world-class oil discoveries in the offshore Stabroek Block, the first occurring in 2015, big oil was captivated by the petroleum potential held by the Guyana Suriname Basin. This saw foreign energy companies, including Malaysia’s Petronas, France’s TotalEnergies and U.S.-based Chevron in recent years acquire interests in a range of blocks in offshore Guyana and Suriname. Both impoverished former colonies possess the petroleum potential to become major oil producers and exporters, with Guyana well ahead of Suriname when it comes to developing its considerable oil resources. There are clear signs that the Guyana Suriname Basin contains significantly more petroleum than originally estimated.
It is becoming increasingly evident that the U.S. Geological Survey (USGS) grossly underestimated the volume of oil contained in the Guyana Suriname Basin. In a May 2001 assessment of undiscovered conventional oil and gas resources in South America, the USGS determined the Guyana Suriname Basin contained 2.8 billion to 32.6 billion barrels of oil with mean resources of 15.2 billion barrels. At the time, due to the lack of drilling success in the basin, the assessment appeared accurate. Nonetheless, those conservative numbers are now being challenged by Exxon’s 35 discoveries in the Stabroek Block alone, where the supermajor believes it has discovered more than 11 billion barrels of oil.
There has been a slew of other discoveries in Guyana’s territorial waters. The most recent occurred at CGX Energy’s Wei-1 wildcat well in the northern tip of the Corentyne Block, which is contiguous with the Stabroek Block, where 210 feet of hydrocarbon-bearing sands in the Santonian interval was identified. Analysts believe the success of the Wei-1 exploration well, along with CGX’s earlier discovery at the Kawa-1 exploration well roughly nine miles to the southeast of the Wei well, is particularly important for the oil boom occurring in the Guyana Suriname Basin. This indicates the prolific petroleum fairway contained in the Stabroek Block runs through the north of the Corentyne Block and into neighboring Block 58 in offshore Suriname, where TotalEnergies and partner Apache have made five discoveries.
Frontera Energy, CGX’s 68% partner in the Corentyne Block and majority owner, had an independent resource evaluation for its Guyana Blocks conducted during 2021. This evaluation determined the Corentyne Block contains 1.7 billion to 10.7 billion barrels of oil resources with nearly one billion barrels of mean risk oil resources. In a late 2022 report, industry consultancy S&P Global Commodity Insights determined that more than 15 billion barrels of oil have been discovered in Guyana’s territorial waters since Exxon’s first Liza discovery in 2015. That number alone indicates that the USGS substantially underestimated the volume of petroleum contained in the Guyana Suriname Basin.
This becomes more apparent when it is considered that Block 58 offshore Suriname, where 50% partners TotalEnergies and Apache have made five commercial discoveries, is thought to contain up to 6.5 billion barrels of oil resources. Already flow testing at the Sapakara and Krabdagu discoveries in the block has identified there are over 800 million barrels of oil resources in place, with more to be discovered. Based on the numbers for the Stabroek as well as Corentyne Blocks in Guyana’s territorial waters and Block 58 in offshore Suriname, there are easily up to 32 billion barrels, or even more, of oil resources contained in the Guyana Suriname Basin.
That number will only grow as the tempo of exploration and development operations in the basin gain pace. There have been other discoveries in the Guyana Suriname Basin that have yet to be evaluated and determined whether they are exploitable. These include Exxon, along with partner Malaysia’s national oil company Petronas finding oil with the Slonea-1 exploration well in offshore Suriname Block 52 and Apache’s Baja-1 discovery in Block 53. Since 2015, there have also been a series of non-commercial discoveries in Guyana, which despite being deemed unexploitable for assorted reasons, including being water-bearing, further underscore the considerable oil potential contained in the Guyana Suriname Basin.
While TotalEnergies delayed the multi-billion-dollar final investment decision for Block 58, expected in 2022, because of conflicting drilling results and seismic data as well as a high oil-to-gas ratio, Paramaribo is pushing to attract other energy companies. This saw Surname’s government launch a series of oil auctions for the shallow water underexplored Demerara acreage, the latest of which closed at the end of May 2023 with several companies making qualified bids for three of the six blocks offered. In a series of earlier auctions, supermajor Chevron acquired interests in shallow water Block 5 and 7 as well as deepwater Block 42, where the operator Shell, in 2022, drilled the Zanderij-1 wildcat well where a non-commercial oil discovery was made.
Guyana is also focused on attracting further investment in its burgeoning offshore oil boom. Georgetown announced the first-ever petroleum auction in late-2022, which has since been delayed 3 times, now until mid-August 2023, as the government seeks to implement new contractual terms for the country’s production-sharing agreements. That auction sees a total of 14 blocks on offer, comprised of 11 deepwater and three shallow-water blocks, with a view to reducing dependence on the Exxon-led consortium lifting 400,000 barrels per day in the Stabroek Block. According to Reuters, Shell, Brazil’s national oil company Petrobras and Chevron were weighing whether to make bids earlier this year.
At the start of July 2023, it was announced that Guyana’s Environmental Protection Agency had approved Exxon’s ambitious drilling campaign in the Stabroek Block, where it plans to drill 35 exploration and appraisal wells. With the prolific petroleum trend in the Stabroek Block yet to be fully explored and the large volume of discoveries already made that have yet to be appraised, there are significant odds of further oil discoveries being made as that campaign progresses. Other companies such as CGX, Repsol and Shell are pushing ahead with their own drilling campaigns in offshore Guyana.
As foreign energy companies and capital pour into Guyana and Suriname, advancing further exploration and development activity, there is every indication that further world-class oil discoveries will be made. That will significantly boost the volume of exploitable oil resources in the basin to levels well above those estimated by the USGS, with the government organization claiming the geological body contains 15.2 billion barrels of mean undiscovered oil resources. Indeed, there is an estimated 16 billion barrels of exploitable oil resources discovered to date in the Guyana Suriname Basin, with various estimates indicating that it contains at least 27 billion barrels of oil resources. This considerable petroleum potential will fuel what is South America’s largest oil boom and deliver a tremendous economic windfall for Guyana and Suriname.
By Matthew Smith for Oilprice.com
Oil estimates for the Guyana Suriname Basin, particularly Guyana's Stabroek Block, are being revised upwards, with Exxon's 35 discoveries believed to contain over 11 billion barrels of oil.
Various oil discoveries in both Guyana and Suriname indicate the presence of up to 32 billion barrels of oil resources in the basin, a number that is likely to grow as exploration and development operations escalate.
The surge in oil resources is attracting foreign energy companies and investment, fueling what is projected to become South America's largest oil boom and promising significant economic benefits for Guyana and Suriname.
Tiny South American country Guyana, which has a population of less than one million, recently emerged as the world’s hottest offshore frontier drilling location. After Exxon’s slew of world-class oil discoveries in the offshore Stabroek Block, the first occurring in 2015, big oil was captivated by the petroleum potential held by the Guyana Suriname Basin. This saw foreign energy companies, including Malaysia’s Petronas, France’s TotalEnergies and U.S.-based Chevron in recent years acquire interests in a range of blocks in offshore Guyana and Suriname. Both impoverished former colonies possess the petroleum potential to become major oil producers and exporters, with Guyana well ahead of Suriname when it comes to developing its considerable oil resources. There are clear signs that the Guyana Suriname Basin contains significantly more petroleum than originally estimated.
It is becoming increasingly evident that the U.S. Geological Survey (USGS) grossly underestimated the volume of oil contained in the Guyana Suriname Basin. In a May 2001 assessment of undiscovered conventional oil and gas resources in South America, the USGS determined the Guyana Suriname Basin contained 2.8 billion to 32.6 billion barrels of oil with mean resources of 15.2 billion barrels. At the time, due to the lack of drilling success in the basin, the assessment appeared accurate. Nonetheless, those conservative numbers are now being challenged by Exxon’s 35 discoveries in the Stabroek Block alone, where the supermajor believes it has discovered more than 11 billion barrels of oil.
There has been a slew of other discoveries in Guyana’s territorial waters. The most recent occurred at CGX Energy’s Wei-1 wildcat well in the northern tip of the Corentyne Block, which is contiguous with the Stabroek Block, where 210 feet of hydrocarbon-bearing sands in the Santonian interval was identified. Analysts believe the success of the Wei-1 exploration well, along with CGX’s earlier discovery at the Kawa-1 exploration well roughly nine miles to the southeast of the Wei well, is particularly important for the oil boom occurring in the Guyana Suriname Basin. This indicates the prolific petroleum fairway contained in the Stabroek Block runs through the north of the Corentyne Block and into neighboring Block 58 in offshore Suriname, where TotalEnergies and partner Apache have made five discoveries.
Frontera Energy, CGX’s 68% partner in the Corentyne Block and majority owner, had an independent resource evaluation for its Guyana Blocks conducted during 2021. This evaluation determined the Corentyne Block contains 1.7 billion to 10.7 billion barrels of oil resources with nearly one billion barrels of mean risk oil resources. In a late 2022 report, industry consultancy S&P Global Commodity Insights determined that more than 15 billion barrels of oil have been discovered in Guyana’s territorial waters since Exxon’s first Liza discovery in 2015. That number alone indicates that the USGS substantially underestimated the volume of petroleum contained in the Guyana Suriname Basin.
This becomes more apparent when it is considered that Block 58 offshore Suriname, where 50% partners TotalEnergies and Apache have made five commercial discoveries, is thought to contain up to 6.5 billion barrels of oil resources. Already flow testing at the Sapakara and Krabdagu discoveries in the block has identified there are over 800 million barrels of oil resources in place, with more to be discovered. Based on the numbers for the Stabroek as well as Corentyne Blocks in Guyana’s territorial waters and Block 58 in offshore Suriname, there are easily up to 32 billion barrels, or even more, of oil resources contained in the Guyana Suriname Basin.
That number will only grow as the tempo of exploration and development operations in the basin gain pace. There have been other discoveries in the Guyana Suriname Basin that have yet to be evaluated and determined whether they are exploitable. These include Exxon, along with partner Malaysia’s national oil company Petronas finding oil with the Slonea-1 exploration well in offshore Suriname Block 52 and Apache’s Baja-1 discovery in Block 53. Since 2015, there have also been a series of non-commercial discoveries in Guyana, which despite being deemed unexploitable for assorted reasons, including being water-bearing, further underscore the considerable oil potential contained in the Guyana Suriname Basin.
While TotalEnergies delayed the multi-billion-dollar final investment decision for Block 58, expected in 2022, because of conflicting drilling results and seismic data as well as a high oil-to-gas ratio, Paramaribo is pushing to attract other energy companies. This saw Surname’s government launch a series of oil auctions for the shallow water underexplored Demerara acreage, the latest of which closed at the end of May 2023 with several companies making qualified bids for three of the six blocks offered. In a series of earlier auctions, supermajor Chevron acquired interests in shallow water Block 5 and 7 as well as deepwater Block 42, where the operator Shell, in 2022, drilled the Zanderij-1 wildcat well where a non-commercial oil discovery was made.
Guyana is also focused on attracting further investment in its burgeoning offshore oil boom. Georgetown announced the first-ever petroleum auction in late-2022, which has since been delayed 3 times, now until mid-August 2023, as the government seeks to implement new contractual terms for the country’s production-sharing agreements. That auction sees a total of 14 blocks on offer, comprised of 11 deepwater and three shallow-water blocks, with a view to reducing dependence on the Exxon-led consortium lifting 400,000 barrels per day in the Stabroek Block. According to Reuters, Shell, Brazil’s national oil company Petrobras and Chevron were weighing whether to make bids earlier this year.
At the start of July 2023, it was announced that Guyana’s Environmental Protection Agency had approved Exxon’s ambitious drilling campaign in the Stabroek Block, where it plans to drill 35 exploration and appraisal wells. With the prolific petroleum trend in the Stabroek Block yet to be fully explored and the large volume of discoveries already made that have yet to be appraised, there are significant odds of further oil discoveries being made as that campaign progresses. Other companies such as CGX, Repsol and Shell are pushing ahead with their own drilling campaigns in offshore Guyana.
As foreign energy companies and capital pour into Guyana and Suriname, advancing further exploration and development activity, there is every indication that further world-class oil discoveries will be made. That will significantly boost the volume of exploitable oil resources in the basin to levels well above those estimated by the USGS, with the government organization claiming the geological body contains 15.2 billion barrels of mean undiscovered oil resources. Indeed, there is an estimated 16 billion barrels of exploitable oil resources discovered to date in the Guyana Suriname Basin, with various estimates indicating that it contains at least 27 billion barrels of oil resources. This considerable petroleum potential will fuel what is South America’s largest oil boom and deliver a tremendous economic windfall for Guyana and Suriname.
By Matthew Smith for Oilprice.com
Offshore Oil Stocks Flying As Investors Bet On A Deep Water Boom
Offshore drilling companies have seen their share prices jump this year as a result of renewed appetite for offshore drilling and exploration.
One notable trend in the ongoing offshore boom is a large increase in deepwater and ultra-deepwater drilling.
Ultra-deepwater production is set to continue growing at breakneck speed to account for half of all deepwater production by 2030.
Stocks of offshore oil and gas drillers and producers have gone on a tear after recent contracts broke records, reversing their seven-year downturn that reached its nadir during the Covid-19 pandemic. Rising global petroleum demand, coupled with increasing deepwater exploration and drilling, has been keeping offshore contractors really busy.
Leading with impressive gains is deepwater drilling specialist, Transocean Ltd. (NYSE:RIG), whose stock has gained 99.1% in the year-to-date. RIG stock jumped nearly 10% over the past week after the company reported a three-year, $518 million contract to deploy one of its drillships in the Gulf of Mexico, the latest in a series of large transactions announced in recent months. The company has revealed that its aggregate incremental backlog associated with the latest contracts totals ~$1.2, bringing its total backlog to $9.2B. Meanwhile, rig rates have shot up to $480,000 a day, a 50%Y/Y increase and about triple the downturn’s lows.
Deepwater Boom
One notable trend in the ongoing offshore boom is a large increase in deepwater and ultra-deepwater drilling. Recently, the China National Petroleum Corporation (CNPC), the government-owned parent company of PetroChina, and Cnooc (OTCPK: CEOHF), kicked off ultra-deepwater exploratory drilling for oil and gas as the country looks to wean itself of foreign oil. According to Chinese news agency Xinhua Global Service, CNPC will drill a test borehole of up to 11,000 meters (36,089 feet), the country’s deepest ever, which will help it better understand the Earth’s internal structure better, as well as to test underground drilling techniques.Related: Oil Prices Drop As Market Awaits Fed’s Interest Rate Decision
CNPC’s borehole depth is not far from Qatar’s world record of 12,289 meters (40,318 feet) for a petroleum well depth that was drilled in the Al Shaheen Oil Field in 2008 or Russia’s Kola Superdeep well that reached a depth of 12,262 meters (40,230 feet).
In the oil and gas exploration and production (E&P) industry, deepwater is defined as water depth greater than 1,000 feet while ultra-deepwater is defined as depths greater than 5,000 feet.
But China is not the only country willing to drill to ridiculous depths in the pursuit of energy security.
Deepwater oil and gas production is set to increase by 60% by 2030, to contribute 8% of overall upstream production, according to a new report from Wood Mackenzie, as cited by Rig Zone.
Ultra-deepwater production is set to continue growing at breakneck speed to account for half of all deepwater production by 2030.
Deepwater production remains the fastest-growing upstream oil and gas segment with production expected to hit 10.4 million boe/d in 2022 from just 300,000 barrels of oil equivalent per day (boe/d) in 1990. Wood Mackenzie has predicted that by the end of the decade, that figure will pass 17 million boe/d.
Norway's Aker BP (NYSE:BP) (OTCQX:AKRBF) is the latest oil major to make an ultra-deepwater discovery. At a total depth of 8,168 m, Aker BP says the well is the longest exploration well drilled in offshore Norway. The much bigger-than-expected oil discovery was made in the Yggdrasil area of the North Sea.
Preliminary estimates indicate a gross recoverable volume of 40 million-90 million barrels of oil equivalent (boe), much higher than the company’s earlier projection of between 18 million and 45 million boe. The discovery will significantly enhance the company’s resource base for the Yggdrasil development, which previously was estimated at 650M gross boe.The oil discovery is located within production licenses 873 and 442: In license 873, with Equinor ASA (NYSE:EQNR) and PGNiG Upstream Norway as partners. The plan for development and operations (PDO) for this project was submitted to Norwegian authorities in December 2022, with production scheduled to start in 2027.
Two years ago, U.S. oil and gas major Exxon Mobil (NYSE: XOM) made a big deepwater oil and gas find. Exxon announced that it had made two more discoveries at the Sailfin-1 and Yarrow-1 wells in the Stabroek block offshore Guyana, bringing discoveries on the block to more than 30 since 2015. Exxon revealed that the Sailfin-1 well was drilled in 4,616 feet of water and encountered 312 feet of hydrocarbon-bearing sandstone, while the Yarrow-1 well was drilled in 3,560 feet of water and encountered 75 feet of hydrocarbon-bearing sandstone.
Exxon did not disclose how much crude oil or gas it estimates the new discoveries to contain, but hiked a previous output forecast for the third quarter from older discoveries in the region.
The supermajor has boosted development and production offshore Guyana at a pace that "far exceeds the industry average”. Exxon’s two sanctioned offshore Guyana projects, Liza Phase 1 and Liza Phase 2, are now producing above design capacity and have already achieved an average of nearly 360K bbl/day of oil. The supermajor expects total production from Guyana to cross a million barrels per day by the end of this decade.
Exxon said a third project, Payara, is expected to launch by year-end 2023 while a fourth project, Yellowtail, could kick off operations in 2025.
Exxon is the operator of the Stabroek block where it holds a 45% interest while partners Hess Corp. (NYSE: HES) and Cnooc hold a 30% and 25% interest, respectively. Exxon’s oil and gas production are well below record levels, averaging 3.7M boe/day, nearly 9% below 4.1M boe/day set in 2016.
By Alex Kimani for Oilprice.com
By Alex Kimani - Jul 26, 2023
Offshore drilling companies have seen their share prices jump this year as a result of renewed appetite for offshore drilling and exploration.
One notable trend in the ongoing offshore boom is a large increase in deepwater and ultra-deepwater drilling.
Ultra-deepwater production is set to continue growing at breakneck speed to account for half of all deepwater production by 2030.
Stocks of offshore oil and gas drillers and producers have gone on a tear after recent contracts broke records, reversing their seven-year downturn that reached its nadir during the Covid-19 pandemic. Rising global petroleum demand, coupled with increasing deepwater exploration and drilling, has been keeping offshore contractors really busy.
Leading with impressive gains is deepwater drilling specialist, Transocean Ltd. (NYSE:RIG), whose stock has gained 99.1% in the year-to-date. RIG stock jumped nearly 10% over the past week after the company reported a three-year, $518 million contract to deploy one of its drillships in the Gulf of Mexico, the latest in a series of large transactions announced in recent months. The company has revealed that its aggregate incremental backlog associated with the latest contracts totals ~$1.2, bringing its total backlog to $9.2B. Meanwhile, rig rates have shot up to $480,000 a day, a 50%Y/Y increase and about triple the downturn’s lows.
Deepwater Boom
One notable trend in the ongoing offshore boom is a large increase in deepwater and ultra-deepwater drilling. Recently, the China National Petroleum Corporation (CNPC), the government-owned parent company of PetroChina, and Cnooc (OTCPK: CEOHF), kicked off ultra-deepwater exploratory drilling for oil and gas as the country looks to wean itself of foreign oil. According to Chinese news agency Xinhua Global Service, CNPC will drill a test borehole of up to 11,000 meters (36,089 feet), the country’s deepest ever, which will help it better understand the Earth’s internal structure better, as well as to test underground drilling techniques.Related: Oil Prices Drop As Market Awaits Fed’s Interest Rate Decision
CNPC’s borehole depth is not far from Qatar’s world record of 12,289 meters (40,318 feet) for a petroleum well depth that was drilled in the Al Shaheen Oil Field in 2008 or Russia’s Kola Superdeep well that reached a depth of 12,262 meters (40,230 feet).
In the oil and gas exploration and production (E&P) industry, deepwater is defined as water depth greater than 1,000 feet while ultra-deepwater is defined as depths greater than 5,000 feet.
But China is not the only country willing to drill to ridiculous depths in the pursuit of energy security.
Deepwater oil and gas production is set to increase by 60% by 2030, to contribute 8% of overall upstream production, according to a new report from Wood Mackenzie, as cited by Rig Zone.
Ultra-deepwater production is set to continue growing at breakneck speed to account for half of all deepwater production by 2030.
Deepwater production remains the fastest-growing upstream oil and gas segment with production expected to hit 10.4 million boe/d in 2022 from just 300,000 barrels of oil equivalent per day (boe/d) in 1990. Wood Mackenzie has predicted that by the end of the decade, that figure will pass 17 million boe/d.
Norway's Aker BP (NYSE:BP) (OTCQX:AKRBF) is the latest oil major to make an ultra-deepwater discovery. At a total depth of 8,168 m, Aker BP says the well is the longest exploration well drilled in offshore Norway. The much bigger-than-expected oil discovery was made in the Yggdrasil area of the North Sea.
Preliminary estimates indicate a gross recoverable volume of 40 million-90 million barrels of oil equivalent (boe), much higher than the company’s earlier projection of between 18 million and 45 million boe. The discovery will significantly enhance the company’s resource base for the Yggdrasil development, which previously was estimated at 650M gross boe.The oil discovery is located within production licenses 873 and 442: In license 873, with Equinor ASA (NYSE:EQNR) and PGNiG Upstream Norway as partners. The plan for development and operations (PDO) for this project was submitted to Norwegian authorities in December 2022, with production scheduled to start in 2027.
Two years ago, U.S. oil and gas major Exxon Mobil (NYSE: XOM) made a big deepwater oil and gas find. Exxon announced that it had made two more discoveries at the Sailfin-1 and Yarrow-1 wells in the Stabroek block offshore Guyana, bringing discoveries on the block to more than 30 since 2015. Exxon revealed that the Sailfin-1 well was drilled in 4,616 feet of water and encountered 312 feet of hydrocarbon-bearing sandstone, while the Yarrow-1 well was drilled in 3,560 feet of water and encountered 75 feet of hydrocarbon-bearing sandstone.
Exxon did not disclose how much crude oil or gas it estimates the new discoveries to contain, but hiked a previous output forecast for the third quarter from older discoveries in the region.
The supermajor has boosted development and production offshore Guyana at a pace that "far exceeds the industry average”. Exxon’s two sanctioned offshore Guyana projects, Liza Phase 1 and Liza Phase 2, are now producing above design capacity and have already achieved an average of nearly 360K bbl/day of oil. The supermajor expects total production from Guyana to cross a million barrels per day by the end of this decade.
Exxon said a third project, Payara, is expected to launch by year-end 2023 while a fourth project, Yellowtail, could kick off operations in 2025.
Exxon is the operator of the Stabroek block where it holds a 45% interest while partners Hess Corp. (NYSE: HES) and Cnooc hold a 30% and 25% interest, respectively. Exxon’s oil and gas production are well below record levels, averaging 3.7M boe/day, nearly 9% below 4.1M boe/day set in 2016.
By Alex Kimani for Oilprice.com
