OilPrice.com Editor October 20, 2020
While the deeply impoverished country of Guyana is attracting the lion’s share of oil-related attention, it is Suriname nearby where the next major petroleum discovery could occur.
ExxonMobil’s many discoveries in offshore Guyana, including the latest Redtail-1 discovery – its 18th offshore discovery in the poor old British colony – underscores the significant potential of the Guyana-Suriname Basin. The growing regional importance of Guyana and Suriname’s growing oil boom was highlighted by US Secretary of State Michael R Pompeo visiting both countries last month. That visit was designed to show support for the newly elected leaders of both countries after experiencing turmoil and political crises. It was in early August that Irfaan Ali was sworn in as president of Guyana after a full-time standoff with outgoing president David Granger, who had declared victory after the March 2 election. It was early July when the Suriname parliament elected former – chief of police and justice minister Chandrikapersad Santokhi to replace Desi Bouterse who faces murder and narco-trafficking charges. US energy majors, especially Exxon and Hess, have taken the lead in exploring and developing offshore Guyana while Apache seeks to replicate their significant success in Suriname. Those political crises, the growing Russian influence in Venezuela, and increased investment by US energy majors all emphasize why the United States needs to strengthen its relations with the very poor South American nations.
The significant oil potential of the Guyana-Suriname Basin, which the US Geological Survey estimates holds nearly 14 billion barrels of crude oil and 32 trillion cubic feet of natural gas, makes both countries important geopolitical rewards. Russia’s growing relationship with the Maduro regime in neighboring Venezuela, together with Iran’s assistance to Caracas to defeat sanctions, underscores the geopolitical importance of Guyana and Suriname. Apache and its partner Total made three oil discoveries in Suriname’s Block 58 offshore since early 2020. These were the Maka Central-1 well in January, the Sapakara West well-1 April, and the Kwaskwasi-1 well in June. Apache expects to emulate Exxon’s success in offshore Guyana in Suriname. Malaysian energy company Petronas, about a week ago, robbed a high-profile Sloanea-1 probe in its Suriname Offshore Block 52. It is anticipated that this spring will replicate Apache’s success. In May 2020, the company announced that it had entered into a Block 52 farming agreement with Exxon, the third largest publicly traded oil company in the world, buying a 50% interest in the block. That puts Exxon in an ideal position to leverage the expertise and experience gained in offshore Guyana.
Those events, along with the installation of a new democratically elected President and Paramaribo’s focus on developing Suriname’s vast petroleum potential will attract further offshore investment leading to additional major petroleum discoveries. Earlier this year, national oil company Suriname raised $ 150 million from a bond issue to fund its 2020-2027 investment program and fund the $ 99 million of debt instruments that matured during May 2020. In response to the March 2020 oil prices crash and With the COVID-19 pandemic, Staatsolie cut annual spending to $ 20 million and wound up its drilling program to 30 wells this year instead of the 96 it had originally planned. Suriname is the focus of the national oil company onshore with offshore blocks awarded to multinational energy companies. In July 2020, a Staatsolie representative noted that a key reason for winding down investment in its onshore property was: “We are preparing for the moment when a decision should be made to invest in participation in offshore oil production in Block 58, along with Apache and Total. ”
Offshore blocks of Suriname have the greatest potential, as Exxon’s offshore Guyana experience shows. There have been a variety of break-even prices for oil production in Guyana. The CEO of Hess Corporation said in February 2020 that production in the Stabroek block it shares with Exxon, will break even at $ 35 per Brent barrel. That price is expected to fall further as infrastructure is developed, drilling technology improves and technical knowledge develops.
Guyana ranks at the lower end of the global scale for cost recovery prices with the Middle East being the lowest where they are thought to range from $ 19 to $ 27 per pumped barrel. This makes Guyana an attractive investment jurisdiction for international energy majors, especially when the offshore cost recovery price is considered to be less than many other locations in South America. Nearby Colombia, which is Latin America’s third largest oil producer, is pumping per barrel at an average of $ 40 to $ 45 Brent, while Argentina’s Vaca Muerta, touted as the world’s next hot shale player, has redeeming prices costs of over $ 50 for new projects.
Increased demand for light raw will also increase Suriname’s offshore attraction. Around the world there is increasing pressure for low sulfur fuels as governments push to meet global warming emissions targets and reduce environmental damage. This triggered an increase in demand for light sweet crude oil, due to its low sulfur content and cheaper refining costs. Apache’s offshore Suriname finds have been found to be a light sweet raw. It was determined that oil in the Maka Central-1 discovery has an API of 40 to 60 degrees at 50 meters and 35 to 40 degrees at 73 meters. Sapakara West-1 fountain raw had an API of 35 and 40 degrees at 30 meters and 40 to 45 degrees at 36 meters. The latest discovery in July 2020 in the Kwaskwasi-1 well was found to have API abrasions of 34 to 43 degrees. Those API gravities make those discoveries attractive for development, especially after considering the potential for low operating cost recovery prices.
Suriname is on track to replicate Guyana’s success, especially with Exxon moving forward with the recently approved offshore Guyana Payara development and taking a 50% interest in Offshore Suriname 52 Block.
That will see additional infrastructure and expertise being brought into neighboring Guyana that can be used for block development in offshore Suriname. Investment bank Morgan Stanley believes that offshore Suriname could hold up to 6.5 billion barrels of crude oil. Combined with the increasing likelihood of low cost recovery costs and lower geopolitical risk since Chandrikapersad Santokhi’s inauguration as president, Suriname is becoming a particularly attractive jurisdiction for multinational oil companies. Once oil prices improve, with some organizations including Goldman Sachs and Bank of America forecasting $ 60 to $ 65 Brent during 2021, offshore Suriname will be the next hot play in South America. That will boost a poor country that has been beaten by the COVID-19 pandemic. The IMF estimates that Suriname’s economy will shrink by 13% during 2020, compared to an impressive 26% expansion of neighboring Guyana due to its oil boom.