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Analysts reassured of Guyana growth forecasts as 1st oil flows

Oil is flowing, deals are being made and hydrocarbon deposits are still being found. Such is life these days for oil exploration and production companies parked off the northern coast of South America.

In an announcement that was both long-awaited and earlier than originally expected, a consortium of three oil majors said Dec. 20 that they have started oil production from the Liza field, located in the Stabroek Block in Guyana, and that oil should be flowing into the global market by January 2020.

Production from Liza field's first phase is expected to reach full capacity of 120,000 barrels of oil per day in the coming months, with the first sale expected within several weeks, according to project partners Exxon Mobil Corp., Hess Corp. and China National Offshore Oil Corp.

Exxon affiliate Esso Exploration and Production Guyana Ltd. operates and holds a 45% interest in the Stabroek Block, Hess Guyana Exploration Ltd. holds 30% and CNOOC Nexen Petroleum Guyana Ltd. holds the remaining 25%.

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Liza Phase 1 in the Stabroek Block should reach full capacity of 120,000 barrels per day in the next few months.

Source: Hess Corp.

While first oil from Liza-1 will hit the market earlier than initial estimates, analysts were also impressed by the expected production ramp for the project.

According to Tudor Pickering Holt & Co., Exxon's crude oil deliveries from Liza-1 should total about 2 million barrels in January, or about 65,000 bbl/d, much more than the investment firm anticipated. Similar shipments can be expected from Hess and the Guyanese government in February, "comparing favorably to our forecast production ramp for the project," the analysts wrote Dec. 23.

"We see the early start-up and quicker production ramp vs. our forecast of Liza Phase 1 kickstarting growth momentum for [Exxon] as we head into 2020," the Tudor Pickering Holt analysts said.

Similarly, Mizuho analyst Paul Sankey said of the early start and production outlook from Stabroek, "the success is positive for future developments."

"Hess has been on fire this year," Sankey said in a Dec. 23 note to clients. "At this point, we think production from Guyana developments over the next five or so years [is] in expectations, and we would need to see more connection of Guyana operational success back to cash return growth to drive re-rating higher. We probably don't get that until [Liza's second phase] is closer to start-up and Guyana free cash flow inflects."

Exxon said it expects production from the Stabroek Block will top 750,000 barrels per day by 2025, by which time it will have in place five floating, production, storage and offloading vessels, or FPSOs.

The first FPSO vessel — Liza Destiny — arrived at Stabroek in late August and is moored 190 kilometers offshore Guyana. In addition to Liza Destiny, four subsea drill centers will support 17 wells, according to the concept design for the Liza-1 development project.

A second FPSO, Liza Unity, with a capacity to produce up to 220,000 bbl/d is under construction to support the Liza Phase 2 development. In its third-quarter earnings call, Hess CEO and director John Hess said the company expects first oil from Liza-2 in mid-2022.

Looking ever further ahead, front-end engineering design is underway for a potential third FPSO, the Prosperity, to develop the Payara field. Exxon said production from the Payara field may begin as early as 2023, upon approval of the government and project sanctioning. Production from the field is estimated at 220,000 bbl/d.

The Stabroek Block is estimated to host over 6 billion oil equivalent barrels of recoverable resources, but that lofty estimate could still grow.

On Dec. 23, Exxon and Hess announced they made yet another oil discovery offshore Guyana at the Mako-1 well southeast of the Liza field. It was the 15th discovery in the Stabroek Block, Exxon said.

The Tudor Pickering Holt analysts said they expect the next major update to come from Exxon's Investor Day in March 2020.

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