Exxon Strikes Black Gold in Guyana: Sustainable Wealth to Follow?

David Fessler By David Fessler, Energy and Infrastructure Strategist, The Oxford Club

Oil & Gas

Guyana is the third-smallest country in South America. A former British colony, it’s mostly tropical rainforest. The country harvests timber, sugar and rice, but the main engine of its economy is mining bauxite and gold.

But that’s all about to change…

At the end of September, Exxon Mobil (NYSE: XOM) discovered an oil well some 18,445 feet deep off the coast of Guyana.

This is a major discovery in an area that’s known as the Stabroek Block – but it’s not the first well that’s been discovered there…

In fact, it’s the fifth.

The first was back in 2015, when Exxon Mobil discovered more than 295 feet of high-quality, oil-soaked sandstone at the Liza-1 well.

Back in 2000, the U.S. Geological Survey (USGS) estimated, with a 95% level of certainty, that there are at least 2.79 billion barrels of crude in the Guyana-Suriname Basin.

With a 50% level of certainty, the USGS estimates the basin is good for as many as 13.937 billion barrels.

Exxon CEO Darren Woods says initial production at Stabroek will produce 100,000 to 120,000 barrels per day (bpd). Even better, the breakeven cost will be $40 per barrel. And production could start as soon as the end of 2020.

The second phase of Guyana’s newfound discovery could more than triple production, up to as many as 450,000 bpd by the mid-2020s.

By that time, Guyana will be one of Latin America’s top oil producers. That’s amazing, considering the country doesn’t produce any today.

Steve Greenlee, president of ExxonMobil Exploration, expressed the company’s excitement for “the tremendous potential we see from our exploration activities offshore Guyana.” Additionally, he says the company “will continue to further evaluate opportunities on the Stabroek Block.”

Exxon, along with Production Guyana Limited, is the operator on the Stabroek. Together, they hold a 45% interest.

Hess Guyana Exploration Limited holds a 30% interest, and CNOOC Nexen Petroleum Guyana Limited owns the final 25%.

This string of discoveries has made Guyana the latest oil “rags to riches” country. Its current GDP is just over $3 billion, but now major oil revenues are on the horizon…

In the wake of Exxon’s major discoveries, Guyana is building a $500 million onshore oil field services hub…

But Guyana doesn’t want to make the same mistakes other suddenly rich oil countries did. So the country has enlisted the help of the International Monetary Fund.

The IMF is creating a sovereign wealth fund to prepare for the coming oil wealth.

The country has formed the Guyana Oil & Gas Association with the intention of developing a sustainable path to wealth for itself.

Investors should keep an eye on how the oil business unfolds off the shore of Guyana. I know I will be.

Good investing,

Dave