Hess Corp., a partner in the Exxon Mobil Corp.-operated Stabroek Block offshore Guyana, said July 29 that “two additional high-quality reservoirs” were identified during appraisal drilling at the Yellowtail Field.

The reservoirs were located adjacent to and below the field, elevating hopes for a potential future development with resource quality similar to that of the play-opening Liza discovery. Drilled by the Stena Carron rig, the Yellowtail-2 well is one mile southeast of Yellowtail-1.

The find marks another successful milestone for partners on the block, where Hess and Exxon, working with CNOOC Ltd., have made 16 significant discoveries since 2015. More than an estimated 8 billion barrels of oil equivalent in gross recoverable resources have been discovered so far by the partnership.

Hess CEO John Hess said the joint venture partners have an “exciting world-class inventory of future drillable prospects,” including in deeper horizons like the Santonian.

“This will really underpin low-cost barrel developments for many years to come, sustaining our trajectory of industry leading cash flow growth from Guyana through the decade,” Hess said July 29 during the company’s second-quarter earnings call.

The quarter, however, was marked by an unprecedented oil price crash when WTI briefly traded below zero in April. Oil prices have since recovered to around $40/bbl.

Lower oil prices ate into the sector’s profits and forced many E&P companies to slash budgets, drop rigs and curtail production. Hess, which opted to store crude in VLCCs instead of curtailing production, reported July 29 a net loss of $320 million for the second quarter, compared with a net loss of $6 million a year ago.

Growth Engine

Hess remains focused on long-term growth as it navigates headwinds and pushes forward with exploration, appraisal and development to meet future energy needs. The exploration win offshore Guyana can be seen as a positive for an industry that has seen better days.

Hess COO Greg Hill said the company is excited about the potential of the Santonian offshore Guyana.

“It’s just an older river system that looks very similar on seismic to the Liza-type deltaic environment,” Hill said. “Now, obviously, it’s early days so we’ve got to get a lot more penetrations in the Santonian to understand it. And that will be a big part of the exploration and appraisal program going forward in the next couple of years.”

Like the Yellowtail discovery made in 2019, Yellowtail-2 has Liza-like high-quality oil and reservoir, executives said.

Plus, “we saw continuity with an existing very large aerial extent in Yellowtail and then also a lower lobe,” Hill said, adding the complex has gotten bigger.

Just over a mile northwest of Yellowtail 1, the Noble Don Taylor spud the Redtail exploration well on July 13. “The well will target similar stratigraphic intervals as Yellowtail and will consist of an original hole and sidetrack and will include an option to conduct a drill stem test in the future,” he said.

The Yellowtail and Redtail wells will form the basis of another FPSO development, Hill said. The partners are deciding which of the remaining developments will become part of Phase 4 or Phase 5. Given its higher quality oil and value, Yellowtail could move ahead of Hammerhead in the development queue, according to Hill.

Making Progress

Elsewhere on the block, efforts to commission water injection and increase gas injection are in the works at the Liza Field, where production started last year. The work would move the Liza Destiny FPSO to its 120,000 gross bbl/d full capacity in August.

“Beyond that, the operator is evaluating debottlenecking options,” Hill said. “We don’t know exactly how much additional capacity that’s going to add yet because the studies are ongoing. But what I will say is that that debottlenecking work will most likely occur in the first half of 2021. So, we hope that in the first half that we’ll be able to get more capacity out of Liza Phase 1.”

Meanwhile, work is also progressing at the larger Liza Phase 2 development, which is on track for first oil in early 2022 with 75% of the work completed.

However, the Payara development could see a potential production startup delay of six to 12 months as the partners await Guyana’s newly elected government to move into place. Some activities for the project are pending government approval.

“The joint venture is ready to move forward as expeditiously as possible as soon as the government is ready to do so,” Hess said.

Given the latest on Yellowtail and other high-quality assets on the block, Hess was asked on the call whether the company had any interest in selling down interests in lower-quality Guyana assets. The short answer: no.

“Our company is always looking to optimize the value of our portfolio,” Hess said. “One of the lowest-cost, highest return investments in the industry is our position in Guyana. We see a lot more running room there. … If we could get more of it, we’d like more of it. So, no, we don't have any interest in selling down.”

Oil Prices

Stabroek Block activity comes as the partners gear up to move farther north to the Kaieteur Block, where plans are for the Stena Carron to drill the Tanager 1 exploration well.

For long-term growth, Hess is counting on its low-cost Guyana assets, which has enough resources for five FPSOs. The estimated breakevens for Liza phases 1 and 2 are $35/bbl and $25/bbl, respectively.

A nearly 40% increase in production in the Bakken and production from the Liza Field pushed the company’s net oil and gas production, excluding Libya, up about 22% to average 334,000 boe/d during the second quarter compared to a year earlier.

However, low oil prices and slowed demand resulted in lower profits. Hess reported its average realize crude oil selling price was $20.63/bbl during the second quarter. That is down from $61.37/bbl in the prior-year quarter.

Liza crude was pricing at Brent early in the second quarter when prices were low, Hess CFO John Rielly said. However, “third-quarter realizations will reflect the quarter and quarter improvement in Brent prices.”

Around noon CT, Brent crude futures were up to $43.62/bbl, while WTI futures were also up to $41.22/bbl.

Offshore