Oil Prospects 2015-2020

Author: Ryan Fraser University of Guyana: Faculty of Technology Geology Department

DATE: 16TH APRIL, 2016

Near-term Future of Oil & Gas Exploration in Guyana Research Paper GEM3201 GEOLOGY OF GUIANA SHIELD

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Table of Contents

Oil & Gas Background..........................................................................................................3

Geological setting of the Guyana-Suriname Basin: .............................................................5

History of Oil & Gas Exploration: .........................................................................................9

Key Oil & Gas Exploration Companies Players in Guyana Offshore Basin: .....................15

Basin Potential According to the United States Geological Survey (USGS) ....................16

Offshore and Onshore Block Licence Map: ..................................................................17

Petroleum Exploration & Production Licence, Block Reference Map of Onshore and Offshore Concessions. .......................................................................................................18

Guyana’s Attractiveness for Petroleum Ventures: ..........................................................19

The Significant Guyana Oil Discovery: ..............................................................................20

Roughly Quantified Financial Impact to Exxon Mobil:...................................................20

This Oil Is a "Game Changer" for Guyana: .....................................................................21

The Venezuelan Curveball: ............................................................................................21

Bottom Line:...................................................................................................................23

ExxonMobil’s Looming Downgrade ..................................................................................24

ExxonMobil Pre-Feed bids for Liza-1 Well Guyana ..........................................................25

Near-term Future of Oil & Gas Exploration in Guyana ....................................................26

Crude Oil Price Forecast: Long Term 2016 to 2025 | Data and Charts..........................26

Petroleum Politics: OPEC - Organization of Petroleum Exporting Countries ................33

Availability of Infrastructure:............................................................................................34

Infrastructure and Construction Needs: Current Construction Sector and Capacity ....34

Infrastructure Constraints and Needs ...........................................................................34

Port facilities ..................................................................................................................34

Other Direct Infrastructure ............................................................................................35

Utilities and Transport ...................................................................................................36

Public Services and Facilities ..............................................................................................37

Private Sector Facilities ..................................................................................................37

Social-Economic Impacts: ..............................................................................................38

Role of local Banks ............................................................................................................39

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Oil & gas Industry funding challenge .............................................................................39

Banking sector appetite for oil and gas investments ....................................................40

Equity Financing: ............................................................................................................40

Debt Financing: ..............................................................................................................41

Potential Benefits to Businesses: ...................................................................................42

Recent exploration drilling activities in Guyana-Suriname Basin ......................................43

Previous Exploration Program (2010-2012): .....................................................................43

Current Exploration Program (2015-2016): Source CGX May 2015 Presentation ............44

Liza-1 Discovery by ExxonMobil Corp., Stabroek Block Area March 20th, 2015 ................45

Future of other drilling activity in Guyana-Suriname basin:..............................................46

Scenarios for the Future Development of Oil and Gas in Guyana:................................47

Implications of a Commercial Oil & Gas Discovery in the Guyana Basin: .......................47

Discussion ..........................................................................................................................49

Conclusion..........................................................................................................................51

References .........................................................................................................................52

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Oil & Gas Background

Guyana is divided into two Petroleum Basins named Guyana and Takutu,

respectively. The Guyana Basin is further divided into two basins, Onshore and

Offshore. Herein is a synopsis of the Basins.

Onshore Guyana Basin

The deepest part of the southern “boundary” is some 150 miles from the

Guyanese Coastline. NABI Oil And Gas, Inc. and ON ENERGY Inc. companies have

concessions within this part of the Basin.

Within the Onshore Guyana Basin, there was a chance of these blocks being

subjected to competitive bidding, however this does not take away any one’s

prerogative to apply for concessions within this area. There were 13 wells drilled within

this part of the Basin from 1916 to present day. Only Rose Hall-1 drilled in 1941 and

Drill-1 in 1967 had oil shows. The eastern part of the Onshore Guyana Basin has the

largest thickness of sediments reaching some 2,500 m. It should also be noted that the

gas found on the coast is nearly all biogenic, with a very small area yielding thermogenic

gas.

Offshore Guyana Basin

REPSOL, ANADARKO, ESSO/HESS/NEXEN, Mid-Atlantic Oil and Gas, Inc., RATIO

Energy/Guyana Ltd and CGX Resources Inc. have petroleum concessions in this part of

the basin. Presently, a number of companies are negotiating for concessions in the

offshore Guyana Area.

On the aspect of Offshore Guyana Basin, from the nearshore to around 80 miles

to the north, the seabed is generally on the continental shelf then it moves to the slope

and as one gets further it reaches the deep-water area. From the northwest (where the

Anadarko concession is) to the Northeastern area depths can be from 1,000 feet to

more than 10,000 feet. This area is known as the “ultra-deep waters”. In May 2015,

ESSO made a significant discovery of petroleum while drilling in its Stabroek Block.

Guyana has never had a commercial petroleum discovery, although there are a

number of wells that had oil and gas shows both onshore and offshore. Prior to the

ESSO discovery, our “best” well has been Karanambo-1 well drilled by Home Oil in the

Takutu Basin in 1982.

Takutu Basin

Located in the southwestern area of Guyana lies the Karanambo-1 well, which

was drilled in 1982 by Home Oil Company. This was the best prospect drilled within this

Basin. Located in southwestern Guyana a small amount of light crude was

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accrued. Tests conducted on samples from Karanambo-1 found that the oil is of good

quality (420API) and is of a “sweet” variety, that is, it contains less than 0.5% hydrogen

sulphide. However, its geological characteristics are mainly naturally fractured

reservoirs, thus proving more difficult to find commercial petroleum than regular

reservoirs. The other wells drilled in the Takutu are Lethem-1 (1980), Turantsink-1

(1992) and Apoteri K2 well (2011).

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Geological setting of the Guyana-Suriname Basin:

Brief Overview

o The Guyana-Suriname Basin is a half graben Atlantic-margin basin on the

Northeast Coast of South America, as shown in Figure 1 below.

Figure 1 showing the Guyana-Suriname Basin (outlined in green).

o According to the United States Geological Survey in its World Petroleum

Assessment of 2000, this basin was rated the second most prospective unexplored

basin in the world.

o The main reservoir targets are:

I. The Upper Cretaceous and Lower Tertiary Basin floor fans

II. Shelf-Margin deposits

III. Turbidities directly overlying mature source

o Depth mapping of the deep closures however, have eliminated the

distortion/velocity pull-up by an overlying shelf margin carbonate bank of Tertiary

age.

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History of the Basin

o The Guyana-Suriname Basin evolved from a failed rift arm which extends to the

Takatu Basin in an easterly trend straddling the borders of Guyana and Brazil.

o It is bounded to the South and North by the Demerara Plateau high and the

Pomeroon Arch respectively and is described as a trap door structure plunging

from the Pomeroon Arch and impinging against the Demerara Plateau.

o The Atlantic unconformity forms the basement which ranges from Precambrian to

Jurassic age as shown in Figure 2 below.

Figure 2 shows the stratigraphic chart of the Guyana-Suriname Basin.

o The overlying basal sequences were deposited in a gradually deepening

depositional environment formed as a result of downward displacement at the

commencing stages of the South America Africa rifting as it progressed from South

to North. Overlying this unconformity are:

I. The Continental Barremian Stabroek Formation

II. The Aptian Carbonate that gradually drowned

III. The deposition of the Canje Formation which contains the regional

deposited source beds as shown in Figure 3 below.

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Figure 3 showing the outline of the Canje Formation.

o The Canje Formation is followed by a major unconformity i.e. the Berbice Unconformity

in which the sequence boundary forms the Berbice Canyon which cuts into the underlying

sequence at a depth of over 1000m as shown in Figure 4 below.

Figure 4 showing schematic shelf to basin geologic cross section.

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o To the South and North, the unconformity slowly transforms into a disconformity

resembling that of the Arapaima 1 well to the North.

o It is believed that an extremely rapid change in sea level associated with a breach into an

open oceanic environment from an epeiric sea i.e. a shallow sea that covers central areas

of continents during periods of high sea level continued to expand from North to South

due to the Altantic Rift.

o Later the shelf margin’s formation commences at the time of the Berbice Unconformity

as the drift stage of the Atlantic margin alters the formation of the basin to the east as

well as basement faulting. Through the Mid-Miocene (16 – 11.6 Ma ago), the basin margin

remains stable.

o The New Amsterdam Formation overlies the Berbice Unconformity. According to the

Horseshoe #1 well drilled by CGX in 2000, this formation is revealed to be almost entirely

sands on the shelf. In the Arapaima 1 and other wells; interbedded sand clays and modest

carbonates can be seen on the shelf margin. Outboard of the shelf margin the Abary 1

penetrates the uppermost part of the New Amsterdam equivalent section that is

dominated by clays. Seismic interpretation has identified basin floor fans in the basal New

Amsterdam that is equivalent to the North Coroni sands in the North Coroni 1 well drilled

offshore Suriname (approximately 100 km away).

o It is believed that shelf margin deltas exist between the basin floor fan and the upper

sequence in the Abary well.

o The Berbice Canyon, North Coroni Fan and Shelf Margin Delta are focused by the pre-

existing structural trough formed by the underlying failed riff arm and associated trap

door structure.

o A series of carbonate rich members of the Georgetown and Pomeroon Formations overlie

the Cretaceous rocks.

o Formations are dominated by sands with minor Carbonates on the shelf.

o Formations on the shelf margin are dominated by Carbonates with interbedded sands.

o Formations in the basin are dominated by clays and marls becoming more clay rich with

distal proximity.

o Several fan features have been discovered and mapped as turbidities in the Lower

Tertiary Stage.

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o The deposition of the Corentyne Formation commencing in the Mid-Miocene oversteps

the shelf edge as the clastic dominated surge from the Andean uplift is deposited by

continues into the present day.

History of Oil & Gas Exploration:

Oil and gas exploration and evaluation refer not only to the evaluation of proven

resource and the scope for exploiting it economically, it also includes the techniques used

to identify areas with resource potential and to determine development prospects.

There are three distinct phases to the process of evaluation:

Evaluating the resource potential of an area in the prospecting phase so as, for

example, to help in coming to a decision about the acquisition of development

rights;

Evaluating development prospects as part of their exploration phase, so as, for

example to decide whether a structure merits exploratory drilling;

Evaluating the economic value of an oil or gas find.

These three phases in the search for and development of oil and natural gas may be

further divided into a number of different sub-stages. At the conclusion of each evaluation

phase it is possible to make an assessment of the available reserves, but the degree of

accuracy will reflect the level of detail in the preliminary surveys. In areas which have only

been identified as possibly having hydrocarbon potential, speculative guesses are all that

are possible where there is to be exploratory drilling of an actual structure, it is possible

to make estimates of the available reserves; when dealing with a confirmed deposit, then precise calculations of the actual reserves may be made. (Kehrer, 1983).

Earliest Observations, exploration borehole at Waini estuary, near Punta Playa

The first oil exploration in British Guiana was based on reports of oil and gas seeps

dating back to the eighteenth century, when Dutch explorers noted the occurrence of

flotsam pitch near Krukenkal Point, nine mile south-east of Punta Playa, and recorded

hydrocarbon indications. When investigated in the mid-1850s these seeps proved to be

insignificant. The first oil exploration borehole, sunk to investigate these seeps,

encountered droplets of tarry oil.

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Coastal Artesian Water Wells strike Methane Gas

In the early 1900s several coastal artesian wells intersected small quantities of

methane gas. One significant occurrence was from a well drilled in 1926 at Plantation Bath

on the west coast of Berbice, which supplied enough gas for use on the local sugar es tate.

The gas was marsh gas which is not associated with petroleum.

First Prospecting Licence granted on 1938; Onshore Investigations by Trinidad

Leaseholds

The first prospecting licence was granted to Trinidad Leaseholds Company Ltd. In

1938. With partners Central Mining AND Investments Corporation, they conducted

seismic refraction and reflection surveys to determine the location of structures. This led

to the sinking of a well, Rose Hall, near Barama landing on Canje Creek in the deepest part

of the on-shore extension of the Guyana Basin. The well ended 6,465ft in the basement.

A few oil droplets were noted at 6079 feet. Trinidad Leaseholds relinquished their licence

in 1942 and no further exploration was undertaken for more than a decade.

1950s- Regional Survey by Standard Oil

In 1958, Standard Oil of California, United States, acquired exploration rights to

most of the continental shelf. They carried out a regional survey but no wells were sunk.

1960s- On and Off-shore surveys by Geological Survey, SHELL, CONOCO: More than eight well sunk- two off shore

The water stratigraphic boreholes, sponsored by the Geological Survey, were sunk

in 1961. These two holes encountered heavy oil droplets just above basement, but no

commercial potential was indicated. The Geological Surveys also drilled several shallow

stratigraphic boreholes in the Takatu Basin.

In 1965 Licences were granted to SHELL for on and off-shore exploration and to

CONOCO for off-shore exploration. CONOCO then assigned 50% of its rights to TENECO.

SHELL conducted seismic surveys in 1965-66, and started a drilling campaign in 1966. In

1966-67, they sank six wells to obtain stratigraphic information and to test for heavy oil

along the fringe of the Guyana Basin. Reportedly only Drill 1 well near Mahaicony

encountered indications of hydrocarbons.

The CONOCO/TENECO partnership sank two off-shore wells in 1967, the Guyana

Off-shore 1 and Off-shore 2, 100km to the east. Guyana Off-shore 1 was terminated at

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8930 feet, encountering gas shows between 2275 and 6200 feet. Guyana Off-shore 2

proved to be a dry well with minor gas shows at 7284 and 7626 feet.

In the latter part of the 196-s SHELL conducted off-shore seismic surveys, with no drilling.

1970s- Focus on Off-shore Basin, On-shore Takatu Basin: Seven wells sunk by SHELL,

OXCO, CONOCO,DEMINEX

In 1971-1972, Terra Surveys of Canada completed an aeromagnetic survey which

served to create interest in the Takatu Basin. As a result COMORO and the Geological

Survey jointly surveyed the Takatu basin.

In 1971 SHELL, OXCO and CONOCO undertook off-shore seismic surveys and

formed a consortium to sink the Berbice 1 test well. Oil indications were intersected at

7124 feet, before drilling and structural problems forced the abandonment of the well at

7380 feet. The Berbice 1 well was then diverted from 5090 feet to a final depth of 12500

feet, ending in upper Eocene sediments. Although many gas shows were indicated

throughout the section the well was deemed dry and abandoned.

Five holes were drilled in 1974, four by SHELL, and one by DEMINEX. Shell drilled

Mahaica 1 which terminated at 8014 feet in Paleocene sediments. Although reservoir

quality was found to be adequate, no oil shows were seen. SHELL folled-up the dry but

promising Berbice 1 well drilled in 1971 with the Berbice 2 which terminated at 10,049

feet in Upper Oligocene sediments. A production test did not find oil, even though gas

was very evident during drilling and oil-stained siltstones were found. SHELL’s third well

at Abary 1 sunk in the deepest part of the offshore basin close to a targeted seismic

horizon, encountered heavy gases and oil. The well was abandoned without being tested,

because the operators could not control it. Their fourth well Mahaica 2 was located closer

to the shore than Mahaica 1. It gave indications of good reservoir characteristics, but no

hydrocarbon shows were found and the well was terminated at 7500 feet in Paleocene sediments.

DEMINEX drilled Essequibo 1, which the abandoned at 11,199 feet in lower

Miocene sediments. Several oil shows were noted from 7,000 feet to the bottom of the

well. DEMINEX went on to drill Essequibo 2 in 1976-77 to test a structure in the

Cretaceous section, and was discouraged to find only three minor methane gas shows.

Considering the project as unsuccessful, DEMINEX relinquished it licence in 1977.

In 1979 Home Oil of Canada obtained permission to explore the Takutu Basin, and

they conducted a seismic survey in the western half of the concession.

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1980s – Drilling at Takutu: Discovery Well by Home Oil at Karanambo 1…

A Denison/Seagull partnership understood off-shore seismic surveys in 1980, with

follow-up surveys 1982. There was no drilling.

By far the most successful oil exploration to date was Home Oil’s programme of

1981 and 1982, when they sank the Lethem 1 and Karanambo 1 wells in the Takutu Basin,

striving oil flowing at 400 barrels a day in Karanambo 1, in the northwest of the concession

struck oil from fractured Apoteri volcanics of Jurassic age. It is thought that the source of

the oil may have been the Manari Shales the strategically underlie the Apoteri volcanics.

Home Oil could not find partners to continue their drilling programme and no additional

work was done.

The Petroleum Exploration Promotion Project

In, 1984 the World Bank provided financial and technical support for a project to

synthesize petroleum all exploration data in Guyana, to formulate and enact legislation

for petroleum and gas exploration and production, and to actively promote Guyana’s

petroleum exploration potential. Promotional Seminars were held in London and

Houston, Texas. The success of this project was demonstrated by the grant of two off-

shore exploration licences to LASMO/BHP and PETREL/Guyana Exploration Limited (GEL) in 1988. LASMO/BHP completed additional off-shore seismic surveys in 1989.

1990s – Turantsink 2 sunk at Takutu; Arapaimal sunk Off-shore to test Carbonate

Formations

Ten years after Home Oil’s discovery of oil in Karanambo 1 well in fractured

Apoteri volcanics of the Takutu Basin, Guyana Hunt Oil drilled Turantsink 1 well 25 miles

south of Karanambo 1 at the northern edge of the Takutu basin in December 1992, to

investigate the possibility of the presence of a lacustrine fandeltaic system with pervasive

sandstone units and to test for the closure of the oil bearing structure.

The fan delta theory was not confirmed but the faulted structural closure was

located. Instead of a deltaic sand sequence, more than 2,000 feet of evaporate consist of

halite (NaCl) with subordinate slyvite (KCL) was intersected. Oil shows were found in

several sections. The well was abandoned in 1993 at a depth of 11,600 feet, in Apoteri volcanics. Hunt Oil relinquished their Takutu concession at the end of 1993.

TOTAL joined with PETREL/gel in 1989, and the group sank the Arapaima 1 off-

shore well in 1991-92 to test the upper and lower Cretaceous calcareous shale reef

formations along the edge of the Guyana off-shore basin. Reasonably good reservoir

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quality was found in sandstone but the calcareous formations had low porosities. Gas

shows were found in certain horizons. The well abandoned at 11,090 feet.

Proposal for Off-shore wells frustrated by Companies (LASMO/BHP; PETREL/GEL; MOBIL) Inability to Raise Funds

In 1991 MOBIL acquired rights for off-shore exploration and commenced a

geophysical and geochemical exploration programme. LASMO/BHP failed to raise funds

for their proposed drill programme which was based on the results of their off-shore

seismic survey completed in 1989. They withdrew in 1991. Likewise, the PETREL/GEL

partnership could not attract funding for additional exploration and they withdrew in

1992. MOBIL also could not attract partners to jointly drill a well and they withdrew in

1994.

South America Mapping Project (SAMMP)

The Geology and Mines Commission participated as an associate member in the

South American Mapping Project (SAMMP) undertaken between October 1992 and

October 1995. SAMMP was sponsored by six major oil and mining companies (AMOCO,

BHP, CONOCO, EXXON, JNOC and UNOCAL), to gather the maximum available

aeromagnetic and marine magnetic data on the south American continent and its off-

shore continental margin, to compile, catalogue =, display and prepare a digital dataset

of such data and produce a comprehensive report.

Free of any cost, GGMC will benefit through the project by the acquisition of a

decamped, gridded magnetic dataset for Guyana which GGMC can use and distribute

after paying a royalty charge to PGW- Paterson, Grant and Watson.

New Round of Petroleum Exploration Promotion by PETREL

Oil exploration ground to a halt in 1994, ostensibly for lack of funding for drilling

programme. In an effort to revive exploration the government of Guyana in October 1995

entered into an initial six months promotional agreement with PETREL who undertook to

bring companies to Guyana to carry out exploration in the Georgetown off-shore

Exploration Block. The initial contract is renewable for a further three months period.

This agreement gives PETREL exclusive rights to promote the Georgetown off-

shore Block.

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Shell's Abary-1 well, drilled in 1975 in what is now Repsol YPF’s Georgetown

license, found oil and gas shows, and flowed 37° API light oil.

Through the latter part of the 1980s and into the 1990s, Mobil, Total, Guyana Exploration and BHP continued the exploration effort.

The most recent offshore activity occurred in mid-2000, when CGX Energy

attempted to spud a well on its Eagle prospect. However, the rig was run off its location

by Surinamese gunboats, which claimed that it was in Surinamese waters. This was part

of a long-running dispute between the two countries over the maritime border.

CGX was forced to move the rig and went on to drill its Horseshoe West prospect

in the Corentyne block. The well failed to encounter commercial quantities of oil or gas

due mainly to the absence of a shale seal. The company also drilled three onshore wells

during 2005 on its Berbice Block, through its operating stake in the ON Energy JV, but all

three were also dry holes.

No further drilling has taken place offshore Guyana since. In September 2007, the

century old border dispute between Guyana and Suriname was finally settled by the United Nations International Tribunal of the Law of the Sea (ITLOS).

Guyana was awarded 33,000 square kilometers, the majority of the acreage under

dispute, with Suriname awarded the remaining 17,800 square kilometers.

This allowed Repsol YPF to drill a well offshore Suriname earlier that year in Block

30. Unfortunately, its West Tapir prospect came in dry, yet another disappointing offshore

result in the basin. However, the Guyana Basin remains hugely under-explored and hopes

for exploration success remain high.

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Acreage Offshore Concessions in Guyana:

Key Oil & Gas Exploration Companies Players in Guyana Offshore Basin:

CGX Energy Inc., a Canadian oil and gas exploration company holds three licenses in the

Guyana-Suriname Basin, a frontier Basin in South America with a proven hydrocarbon

system and highly prospective deep water plays that can be drilled in shallow water.

This exploration licence included the Corentyne offshore Block, the Demerara offshore

Block and the Berbice onshore Block. Currently drilling is being undertaken in the

Corentyne Block, which began in the third quarter of 2015.

ExxonMobil (Via Esso/Shell), Hess Guyana Exploration Ltd., and Nexen Petroleum

Guyana currently have a joint licence to explore the Stabroek offshore Block.

Repsol YPF Guyana (Spanish oil Company), Tullow Oil Guyana and DEA have exploration licence for the Kanuku offshore Block, seeking more time to continue exploratory work

in the Kanuku offshore block as of 2016.

Anadarko Petroleum Corporation currently holds an exploration licence for the Rorima

offshore Block.

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Basin Potential According to the United States Geological Survey (USGS) The United States Geological Survey (USGS) ranks the Guyana Suriname Basin 2ndin the

world for prospectivity among the world’s unexplored basins and 12th for oil among all the

world’s basins – explored and unexplored. The mean (P50) undiscovered resource potential is

estimated at 15.2 billion bbls.

117 fields >1 million bbls of recoverable oil

24 fields with >100 million bbls of recoverable oil (elephants)

6 fields have >500 million bbls of recoverable oil (giants)

83% of the resource in offshore Lower Tertiary to Cretaceous turbidite fans—the #1 play

type in circum-Atlantic basins such as offshore Brazil and West Africa

Ranks 27th for gas in the world with undiscovered resource potential of 42 trillion cubic

ft. in 30 fields

Ranks 15th in the world for undiscovered oil and gas potential

Mean Undiscovered Oil

Rank Country bbls

Source: USGS World Petroleum Assessment 2000

1 Saudi Arabia 87.1

2 USA 83.0

3 Russia 77.4

4 Iran 53.1

5 Greenland 47.1

6 Brazil 46.7

7 Iraq 45.1

8 Nigeria 37.6

9 Kazakhstan 21.1

10 Mexico 20.6

11 Venezuela 19.7

12 Guyana-Suriname 15.2

13 Angola 14.5

22 UK 6.3

35 Canada 2.8

http://cgxenergy.ca/Glossary.aspx

http://cgxenergy.ca/Glossary.aspx

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Offshore and Onshore Block Licence Map:

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Petroleum Exploration & Production Licence, Block Reference Map

of Onshore and Offshore Concessions.

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Guyana’s Attractiveness for Petroleum Ventures:

What is so attractive about Guyana for Petroleum Ventures?

According to a World Petroleum Assessment in 2000, the United States Geological Survey

(USGS) identified the Guyana-Suriname Basin as having the second highest resource potential

among unexplored oil basins in the world and currently estimates mean recoverable oil reserves

of over 15.2 billion bbls and gas reserves of 32 trillion cubic ft.

Moreover, given this report by the USGS, the prospects of Oil & Gas finds in Guyana have great potential. The estimate for the entire Guyana Basin stands currently at 2.2 billion barrels and 6 trillion cu ft. or 28.3 billion cubic metres of gas, if full exploitation of these resources are encouraged. Likewise, other key factors of Guyana’s attractiveness include:

Political stability – A stable conducive atmosphere, encourages petroleum companies to

do business in Guyana.

Geographic location – Coastal/Offshore area thus easier shipping, rig movements (as

against the Takutu Basin)

Culture - Guyanese have strong work ethic; are easily trained in skills.

Legal, Regulatory and Contractual framework – Current Petroleum legislation is Not

cumbersome and technically sound

Service Industry very close in Trinidad, Venezuela, Suriname, even the Gulf of Mexico.

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The Significant Guyana Oil Discovery:

On May 20th, 2015, ExxonMobil announced an oil discovery in the North Atlantic Ocean off the coast of the South American country, Guyana.

In the press release by the company, the discovery was described as "significant." It was

the result of drilling which had begun on March 5th, 2015.

Details included:

Oil found in the Stabroek Block

Well with large production potential

Projected major economic impact on Guyana's economy

Improved future prospects for Exxon Mobil

Rise of territory dispute between Venezuela and Guyana

The discovery of Oil was made in the Stabroek Block, which is located 120 miles (193

kilometers) off the shore of Guyana and spreads over an area of 6.6 million acres (26,800 square

kilometers) in the Atlantic Ocean. The well called Liza-1, drilled by ExxonMobil affiliate, Esso

Exploration and Production Guyana Ltd., is 5,719 feet (1,743 meters) below sea level. It was

drilled to 17,825 feet (5,433 meters). The drilling of this well resulted in the discovery of a

sandstone column soaked with gas and oil. The reservoir has a depth of 295 feet (90 meters) and

contains oil that of is high quality according to ExxonMobil.

However, this Oil find in the Stabroek Block does not belong soley to ExxonMobil, but it is

rather divided up among three stakeholders. Via its affiliate, Esso Exploration and Production

Guyana Ltd., Exxon Mobil holds a share of 45 percent in the venture. Hess Guyana Exploration

Limited, which is part of the NY-based Hess Corporation (NYSE:HES), has a stake of 30 percent.

The smallest share of 25 percent belongs to the Chinese CNOOC Nexen Petroleum Guyana Limited.

Roughly Quantified Financial Impact to Exxon Mobil:

The production potential of the newly drilled Liza-1 well is projected to be more than

700 million barrels of oil. This estimate was shared by Guyana's minister of governance, Raphael

Trotman, who said that it came from "experts outside of Exxon." Interestingly, in the official

statement announcing the discovery, Exxon gave no official estimate of the well's production

potential.

The president of Exxon Mobil Exploration Company, Stephen M. Greenlee, shared that

the value and commercial viability of the found resource would be determined "over the coming

months." The company has not made an official comment on the estimate presented by

Trotman.

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If it is correct, this would make the well worth $ 22 billion at the current crude oil price

in the international market (at around $31.5 per barrel). Another estimate made by the minister

of governance is that the Liza-1 well will start producing crude oil in five years' time or seven years' time at the most.

Therefore, to quickly summarize, if the $22billion is accurate, ExxonMobil's share is

about $9.9billion at the $31.5 per barrel estimate, and that will be meaningful in about 5-7

years. And for even more perspective, this discovery is about 3.3% of ExxonMobil 's $300B current market cap.

This Oil Is a "Game Changer" for Guyana:

It's worth noting that if the estimates are correct, the oil production from this well can

bring a dramatic change to the economy of Guyana very soon. At present, the country does not

produce any oil and relies primarily on low to medium scale mining of lumber, diamonds and

gold, with the exception of a few large scale gold operations by Troy Resources Ltd., and

Goldfields at medium capacity operation.

In 2014, Guyana had GDP of $3.228 billion, according to data from the World Bank. In

the Bank's GDP country ranking, it held 163th position which is the lowest in the group of South

American countries. With its value of $22 billion at current crude oil prices, the Liza-1 well

exceeds Guyana's GDP 6.815 times. This could give the largely undeveloped country a major

economic boost, which would have a positive impact in important fields such as infrastructure and social policy.

However, the key point of this discovery is that ExxonMobil, and other shareholders, will

be able to pretty easily dictate terms and get highly favorable treatment from the Guyana Government.

The Venezuelan Curveball:

The oil discovery in Guyana comes at a difficult time for ExxonMobil. It can be seen as a

bright spot in a dark time. The company marked its worst financial performance in roughly a

decade. XOM announced earnings of $4.2 billion marking a decrease of 52 percent compared to Q2 of 2014.

ExxonMobil also fell short of the expectations for earnings of $1.11 per share hitting $1

instead. Even though Exxon's oil and gas production output grew by 3.4 percent to 4 million

barrels oil equivalent per day, plunging oil prices have had a major downward impact on earnings.

22

Therefore, with the development of the Liza-1 well in Guyana, the company's assets and

profit could grow significantly with analysts claiming that this could even be the start of a revival

for the Texas-based Corporation.

Moreover, ExxonMobil is not the only company in Guyana’s offshore waters, there are

other companies participating in this space too. The list includes companies like Tullow Oil

(OTCPK:TUWLF) and Anadarko (NYSE:APC). Two Canadian companies, Pacific Rubiales and CGX

Energy (OTCPK:CGXEF), are to explore a block in close proximity to the Liza-1 well.

However to date, the only major challenge in front of the production of oil in the

Stabroek Block is the dispute between Venezuela and Guyana over the region which it is in. This

dispute has a long history and dates back to the 19th century. In 1899, an international tribunal

ruled that the territory called “Essequibo” along with its coastal waters belonged to Guyana, but Venezuela, Guyana’s Western neighbor refused to accept the ruling.

Notably, this dispute had subsided during the presidency of Hugo Chavez, but was

sparked again by his successor Nicolas Maduro just one week after the announcement of the oil

discovery. This renewed spark saw the President of Venezuela issuing a decree which claimed

sovereignty of the disputed region. The foreign minister of the country in press statements referred to the oil exploration made by Exxon as political provocation.

Guyanese officials admit that investors have been intimidated by the recent

developments, but are also making every effort to encourage the continuation of the

exploration activity. The country's president, David Granger, began a campaign for gaining

international support at the Caribbean Community (CARICOM) summit in Barbados in July

continuing at the United Nations General Assembly in September. President Maduro has also

been making efforts to find members of the international community that will back him up.

International Political Analysts and predict that his actions are geared towards reducing political

tension in his own country and that he would not take military action. The changing of the

established border between Guyana and Venezuela at this seems highly unlikely.

ExxonMobil has made no comment on the recent developments in the relations

between the two countries, even though President Maduro made indirect accusation against

the company. He advised Guyana not to take "bad advice" from ExxonMobil or from officials

"bribed" by it.

Venezuela and the largest oil producer (ExxonMobil) in the world have not been on

good terms since 2007 when the local government nationalized the company's assets in the

country. In 2014, an international tribunal of the World Bank ruled that Venezuela must pay

Exxon $1.6 billion in the form of compensation, but no action has been taken so far.

The history of the Venezuelan oil industry is very colorful. Likewise, the U.S. appears to

be backing ExxonMobil. All in all, Venezuela may not be seen as a major threat to this discovery

although it could slow things down, considering that it will take years for this discovery to pay

off for Guyana and ExxonMobil.

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Bottom Line:

The discovery in Guyana appears to be significant. In light of ExxonMobil’s recent bad

news due to the energy crash, this is positive and encouraging about ExxonMobil's future.

However, there are two things to keep in mind. Firstly, the impact is perhaps 3-4% of XOM's

market cap. With a $300B market cap, this is important discovery, as size matters. Secondly, the

timing is well into the future, perhaps six to seven years out if Venezuela gets in the way, and

perhaps three to five years if not. This is very far from instant cash for ExxonMobil, given the

crude market crisis.

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ExxonMobil’s Looming Downgrade

Exxon Mobil Corp., one of three U.S. companies with Standard & Poor’s highest rating, is

facing its first downgrade in 86 years as the worst crude-market collapse in a generation that strangles oil producers of cash.

For Exxon, that would be a historic event: the global explorer that traces its roots to the

19th century and John D. Rockefeller’s Standard Oil Trust has been rated AAA by Standard &

Poor’s since 1930. The oil giant was placed on credit watch with negative implications because

its credit measures probably will remain weak through 2018, Standard & Poor said Tuesday February 2nd, 2016.

The world’s five largest oil explorers (Saudi Amarco, Royal Dutch Shell, ExxonMobil,

Petrochina and British Petroleum) had their credit ratings cut or threatened with downgrade as

the market crash undermines their ability to pay debts, dividends and rig leases. According to

Standards and Poor, for most of the oil industry, slashing drilling budgets and other cost-cutting

“are insufficient to stem the meaningful deterioration expected in credit measures over the next few years.”

Moreover, further statements by S&P signalled its intent to decide on whether to

downgrade Irving, Texas-based Exxon within 90 days and if it does cut the rating, it’ll probably only be by a single notch.

Likewise, among the smaller producers, Hess Corp. Credit rating was lowered to BBB-

from BBB.

However, the long term implications of these downgrade in credit rating, has far

reaching effects on the future of Guyana’s Oil and Gas sector, as international lenders, banks

and creditors are stepping up the frequency of credit reviews for oil producers as regulators flag

the “emerging risk” from the precipitous decline in the commodity’s price over the past year.

25

Furthermore, these rating cuts caused by plummeting crude oil prices, are starving

companies of cash needed to fund drilling, pay dividends and service their debts. These rating

cuts according to Senior Financial executives form Chevron, one of the big oil companies, do not materially impacting their cost of funds or materially impacting their ability to secure financing.

ExxonMobil Pre-Feed bids for Liza-1 Well Guyana

According to the International Oil & Gas Newspaper, ExxonMobil is pouring over

engineering and design bids from floater contractors aiming to supply the US oil company with a

floating production, storage and offloading vessel for the fast-track development of its ground-

breaking, deep-water Liza project off Guyana.

Moreover, it is stated that there are at least five players in the Floater Industry that are

battling to land a contract to lease a “vessel of opportunity” that will able to handle 60,000

barrels per day of crude in addition to significant quantities of gas. According to ExxonMobil, it

expects the first oil being targeted as soon as 2018.

Additionally, ExxonMobil intends to drill at least four more wells on its 6.6-million acre Stabroek block.

26

Near-term Future of Oil & Gas Exploration in Guyana

The development of the Oil & Gas Industry in Guyana will be dependent on several

aspects, including World Market Economics, Petroleum Politics, Socioeconomics and Political

Structure of Guyana, Direct Economic Impact as well as the Availability of Infrastructure (Current & Future).

Crude Oil Price Forecast: Long Term 2016 to 2025 | Data and Charts

Fluctuations in global crude oil prices have always been in the focus of economic and

financial news. The higher crude oil prices rise, the more positive is the economic outlook for

petroleum exporters. In contrast, those countries dependent on petroleum imports suffer to

varying degrees from those same higher prices as import bills increase. Estimates for the price

per barrel for crude oil from leading financial and multilateral institutions are thus closely

monitored by governments, investors, and consumers alike. Below is a summary of some recent crude oil price forecasts:

The World Bank estimated in its January 2016 commodity forecast report that the

average spot price for crude oil will fall slightly further in 2016 to $37/bbl from

$51/bbl in 2015.

The IMF's January report revealed a similar expected decline from $51.6/bbl in 2015 to

$50.4/bbl in 2016.

In September, Goldman Sachs Commodities Research slashed its oil price forecast for

2016 to $49.5/bbl for the international benchmark Brent crude oil from $53.7/bbl in

2015, allowing for a short-term price decline to $20/bbl.

27

Global crude oil price forecasts from the Economist Intelligence Unit and the

Organisation for Economic Cooperation and Development (OECD) are also provided in

the visualizations below.

Source: World Bank

Commodity

Forecast Price Data, January 2016

http://knoema.com/WBCFPD2015Oct/world-bank-commodity-forecast-price-data-january-2016




28

Source: IMF Commodity Price Forecasts, January 2016

http://knoema.com/IMFCPF2016/imf-commodity-price-forecasts-january-2016




29

Crude Oil, $/Barrel, 1960-2015

Source: IMF

Commodity Price

Forecasts, January 2016





30

Source: EIU Economic and Commodity Forecast, December 2015

Source: OECD Economic Outlook No 98, November 2015

http://knoema.com/EIUEF2015Jul/eiu-economic-and-commodity-forecast-december-2015



http://knoema.com/OECDEOLTBP2015/oecd-economic-outlook-no-98-november-2015

http://knoema.com/OECDEOLTBP2015/oecd-economic-outlook-no-98-november-2015

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Crude oil Prices 1960’s Present:

Crude oil, Brent Crude oil, Dubai Crude oil, WTI

1960 1.63

1961 1.57

1962 1.52

1963 1.50

1964 1.45

1965 1.42

1966 1.36

1967 1.33

1968 1.32

1969 1.27

1970 1.21

1971 1.69

1972 1.82

1973 2.81

1974 10.97

1975 10.43

1976 11.63

1977 12.57

1978 12.92

1979 32.11 29.82

1980 37.89 35.85

1981 36.68 34.29

1982 33.42 31.76 32.77

1983 29.83 28.73 30.41

1984 28.80 27.49 29.38

1985 27.33 26.46 27.76

1986 14.77 13.20 15.08

1987 18.34 16.94 19.16

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Crude oil, Brent Crude oil, Dubai Crude oil, WTI

1988 14.97 13.22 15.97

1989 18.22 15.70 19.60

1990 23.68 20.46 24.49

1991 20.07 16.56 21.48

1992 19.31 17.19 20.56

1993 17.02 14.94 18.56

1994 15.83 14.67 17.16

1995 17.07 16.12 18.37

1996 20.65 18.54 22.07

1997 19.09 18.10 20.33

1998 12.72 12.13 14.35

1999 17.81 17.17 19.24

2000 28.27 26.08 30.33

2001 24.42 22.71 25.92

2002 24.97 23.72 26.09

2003 28.85 26.74 31.11

2004 38.30 33.46 41.44

2005 54.43 49.29 56.44

2006 65.39 61.43 66.04

2007 72.70 68.37 72.28

2008 97.64 93.78 99.56

2009 61.86 61.75 61.65

2010 79.64 78.06 79.43

2011 110.94 106.03 95.05

2012 111.97 108.90 94.16

2013 108.86 105.43 97.94

2014 98.94 96.66 93.11

2015 52.37 51.18 48.71

Source: World Bank Commodity Price Data (Pink Sheet), January 2016

http://knoema.com/WBCPD2015Oct/world-bank-commodity-price-data-pink-sheet-january-2016

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Petroleum Politics: OPEC - Organization of Petroleum Exporting Countries

This is an organization consisting of the world's major oil -exporting nations. The

Organization of Petroleum Exporting Countries (OPEC) was founded in 1960 to coordinate the

petroleum policies of its members, and to provide member states with technical and economic

aid. OPEC is a “cartel” that aims to manage the supply of oil in an effort to set the price of oil on

the world market, in order to avoid fluctuations that might affect the economies of both producing and purchasing countries.

Moreover, OPEC membership is open to any country that is a substantial exporter of oil

and that shares the ideals of the organization. As of 2011, OPEC had 12 member countries,

including founder members Iran, Iraq, Kuwait and Venezuela.

OPEC's influence on the market has been widely criticized. Because its member

countries hold the vast majority of crude oil reserves (about 80%) and nearly half of natural gas reserves in the world, the organization has considerable power in these markets.

Thus, Guyana position as an Oil & Gas Producer/Exporter would have to consider the

likes of OPEC once production comes on stream in the near term future. However, the Existence

and Relevance of OPEC is becoming more under threat due to the emergence of the American

Shale oil industry as there has seen little to no regulation in its export import and storage

practices. With this, supply and demand of oil will both be subject to great volatility in the coming

years.

Likewise OPEC’s considerable influence, has the ability to change an manipulate the

supply and demand, if necessary, by having all parties in the organisation regulate their

production output to levels favorable for all parties, allowing supply to the markets to be

constricted while the demand remains stable. This course of action by OPEC, can considerably

drive up market prices for Crude oil to its highest levels on the world trading markets.

However, this course of action will not affect the NON-OPEC members as they are not

obligated to cut their production outputs. Instead, this will provide significant benefits, as they will earn more revenue per barrel of oil while maintaining current production levels.

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Availability of Infrastructure:

One of the most critical aspects of the development and near term Prospects of Oil & Gas Industry in Guyana is the availability of infrastructure.

Infrastructure and Construction Needs: Current Construction Sector and Capacity

The scale of infrastructure investment needed to support the growth of the oil and gas sector in Guyana is very large relative to the existing capacity of the sector. At present are several thousand people work in construction/utilities sector with a further several thousand or so working in utilities and construction within Guyana Government (i.e. in the Public Works Department (PWD)). The Guyana Government in the form of PWD is the by far not the largest employer of construction workers in the Guyana, in face of a shortage of skil led workers. The private construction sector is relatively small with a handful of large firms/construction companies capable of handling large scale construction. However, some of these companies have been involved joint ventures with US-based and UK-based construction companies. However in response to recent news of Oil & Gas finds, and the need for investment for the Oil & Gas sector, Private sector companies in a process of gearing up for future opportunities.

At present, with one exception, all construction materials have to be imported and the long lead-in times add to the challenges of delivering to demanding timescales. The exception to importing is quarry product; currently this is produced at several quarries by several Private Sector Companies. There are significant capacity constraints on the speed with which quarry product can be mined and crushed.

Guyana Construction sector’s current capacity to deliver significant infrastructure projects is very limited in terms of labour supply, overall scale of expertise and local sources of materials. Major construction projects will require a large import of proficient personnel, plant & machinery. There is also a severe potential for crowding out of existing private sector activity (for instance on house building) and of on-going PWD work as a result of future demands.

Infrastructure Constraints and Needs

The development of the oil and gas sector will face two sorts of infrastructure

constraints: those impacting directly on the business activity; and those linked with the associated growth in population. The key constraints are summarised below.

Port facilities This is the most significant issue by far and the single biggest pinch point for the

development of Sea Lion and has been the subject of intensive debate recently. The current Wharf facilities are not suitable for the scale and nature of activity needed during development given the volume of material that will need to be imported to a base and then shipped offshore. The development of a temporary port to meet the needs of the development phase is critical to the project timeline for ExxonMobil. However, any concrete request for proposals to have the

35

temporary harbour facility (with a design life of around 30 years) built to facilitate the needs of the development in Oil & Gas Sector has yet to be made. If any such proposal is made, it will represent a very demanding timescale and would involve substantial dredging works, land based civil engineering and piling work to secure a temporary facility. The facility would need to be used during the development phase at least until 2018.

The development of improved port facilities has been a controversial topic and the likely solutions have changed during the course of this study. The Guyana Governments current preferred long-term solution is to develop a new port to cater for the needs of the Oil & Gas sector in the long term and to improve facilities for the fisheries fleet and the cruise ship sector (offering a deep-water berth to allow transfers onshore when weather conditions militate against the use of tenders). However, this solution will take time to develop and most importantly finance.

It is assumed that for the purposes of development work that main construction will not start until after first oil and associated revenues arrive (i.e. after 2018, ExxonMobil projection). This will be a major project involving a new road, dredging, piling, and considerable amount of earthworks. The Guyana Government is currently insisting that any proposed new facility built on Guyana soil as a temporary facility that is not used once the new port facility is created and that all oil and gas activity will need to migrate to the new port.

Other Direct Infrastructure

Lay down and storage base - ExxonMobil is not currently seeking proposals for a facility comprising a lay down & storage base areas for storage and warehousing, an area for spool fabrication & storage, and areas for drilling and other supply companies. The base would be a controlled site and run to O&G health and safety standards; it would need to be close to the temporary port structure. This base could be developed in stages and further expanded to facilitate work space, storage and capacity needs.

Bundled or reeled flowlines assembly base - This would be a base where the flowlines which connect the Floating Production Storage and Offloading (FPSO) to wellheads and are several kilometres long are assembled. Depending on the technology used a jetty, laydown area and some buildings for staff would be required. The facility would therefore need to be located somewhere in Camp/staging area as it requires a large area onshore. It would be a temporary facility that could be removed, although it could potentially, be re-used by future oil developments.

Staff Holding Area - Potentially O&G firms may seek to invest in a new facility to provide temporary accommodation for offshore O&G workers in transition to act as a back-up should transport be delayed (for instance due to the weather).

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Utilities and Transport

Water - in the immediate term the supply of water is a significant pinch point and

concern for the O&G sector which uses large quantities of water in the development of muds for use in drilling. More generally, water supply in Georgetown has reached a critical situation at times in recent years when there have been especially dry spells due to El Nino weather patterns. The upgrade to supply is needed irrespective of Oil and Gas and is due to be carried out in the near future. The location of where water is supplied to depends on where the main lay-down areas are likely to be. Additional supply is likely to be needed both to the existing port and to any new port.

Electricity: The generators in Stanley are reaching the end of their design life and there is a need to increase overall generation capacity by around 2 megawatts and provide an alternative generation facility (potentially retaining the current one as back-up). The future upgrade needed is being accelerated by the likely demands from the Oil and Gas sector.

Roads: The quality of roads is a serious concern of all Oil and Gas firms due to concerns over health and safety. However, it is not a binding pinch point for the development of Liza 1 or other fields. Nevertheless the greater the volumes of traffic using it as the economy grows the greater will be the case and need for a substantial investment in its upgrade. We have assumed that an upgrade would become so pressing under Scenario 2 that it would have to happen then, but FIG could choose to invest earlier under Scenario 1 (probably once other major infrastructure activity is completed).

Airport: the facilities at the Cheddi Jagan International and the Ogle International Airport would need upgrading to provide additional helicopter storage and to develop it more fully as a commercial oil industry heliport. Currently, there is an ongoing feasibility study for the extension of the Cheddi Jagan International Airport which would see significant improvements to passenger terminals (and associated services) and upgrades to the arrivals and departure facilities. However, although not essential at the moment for the Oil and Gas sector, it would benefit the economy if undertaken. In the longer term under the higher growth scenarios as traffic levels rise the case for investing in modern passenger administration facilities becomes more relevant.

Waste: waste facilities are fairly basic in Guyana with no recycling facilities. The Oil and

Gas sector does produce high volumes of waste that need treatment and disposal. As the sector grows the business case for a dedicated waste recovery facility would grow as well and Guyana Government would need to consider this, in keeping with Environmental Regulations and Acts.

Telecommunications: In Guyana there is already a significant telecommunications base with current services in the Guyana being adequate, although investment to upgrade current infrastructure in parallel with the development of the Oil and Gas sector will become necessary. The growth in economy and population arising from oil and gas would not require significant capital investment but would help spread users across a fixed capital investment helping reduce user charges – something that would be very welcome by residents and businesses alike.

37

Public Services and Facilities

The growth in the population and the economy will lead to extra demands on existing government facilities and the need for future investment. Education: the current capacity of the education system is able cope with the current capacity, although in the case of population increase, new school facilities may need to bed introduced to cope with increase.

Health: the current hospital is large enough to cope with most foreseeable population growth so long as Government is able to continue to improve the facility, with the introduction of more specialised departments manned with well certified doctors and continued introduction of modern equipment and treatment facilities. The emergence of the Oil & gas sectors will require some enhanced medical facilities, but this is essentially to ensure there are suitable evacuation facilities for medical emergencies, which would not require any large capital investment in new facilities.

Other facilities: office accommodation for Guyana Government departments is already quite squeezed and many of the buildings were not designed with modern office use in mind. As the requirements for police, immigration, oil regulation and other public services rise there will be a need to invest in new office accommodation for Government employees.

Private Sector Facilities

The extra demands for accommodation and hotels/restaurant are likely to encourage investment by the private sector. Some investment is already planned. Proposals can be made to develop large residential with multiple block units aimed at providing self-contained, self-catering accommodation in two bed apartments (largely for O&G workers). Beyond this the hotel and restaurant facilities in Guyana can adequately cope with potential population and business expansion.

38

Social-Economic Impacts:

The development of the Liza 1 field by ExxonMobil, further exploration and required

infrastructure investment is going to create a very significant short/medium term spike in labour

demand, immigration and need for accommodation between 2017 and 2018. Employment could

peak at around 550 extra on-shore workers depending on the timing and scale of infrastructure

investment. In the longer term the development will overall support around 170 jobs in Guyana, plus 125 offshore jobs.

Under other scenarios the longer term increase in jobs would be much larger at 600 to

800 plus. The development of an onshore LNG plant would require several thousands of workers

in its construction over a 3 to 4 year period and several hundred in its operational phase.

The impact of Liza 1 on Guyana’s GDP and on Guyana Government revenues will be very

substantial and of a far more transformational nature than the onshore impact of the

development and production of oil. Potentially, the impact of additional future discretionary

spending by Guyana Government as result of higher oil revenues could have at least the same order of magnitude of impact onshore as the direct on-shore effects from the oil and gas sector.

The Liza 1 scenario on its own can be largely accommodated within existing plans for

Stanley. However, it will require major infrastructure investment in port and land-based

facilities. The short term labour market implications could be for a significant increase in wages and labour costs unless there is a supportive policy towards immigration to fill labour gaps.

The implication of more extensive development of oil and gas is that there would be

significant urbanisation and expansion of Central Georgetown. This will require proactive action

by Government of Guyana to offset these natural pressures pulling population to Stanley. All

scenarios will require careful consideration in terms of how population and housing growth and

new facilities should be accommodated in and around Stanley. The proposed new port and

relocation of industry there would represent a major upheaval and re-orientation of the town.

Guyana will have to allow extra workers to come to fill the increase in jobs driven by oil

and gas. There is no other solution to the demands that will be placed on the economy and labour market.

The overall pace and level of migration cannot be constrained by Guyana Government if

unintended consequences are not to emerge. However, the type of immigration can be

controlled and to some extent encouraged by Guyana Government. There is a clear need, given

the likely levels of migration coming up, to have a more fit for purpose and streamlined system –

albeit keeping important checks and balances.

A strong message from the consultation process was the desire to see a more

permanent integrated type of immigration. This may mean changes to matters such as the

ability to own property etc. for those on work permits and changes to the system to encourage a move to Permanent Residence Permit status.

39

Role of local Banks

Business formation and growth is constrained by the relatively limited pool of local entrepreneurs; as result of the size of the economy there is limited competition or monopoly in most business services (including financial services, accountancy, legal, IT etc.). Business support including advice and loans is available to Guyana’s businesses through a number of well-established banks such as, Guyana Bank of Industry & trade, Demerara Bank, Republic Bank, Scotia Bank and Citizens bank.

Additionally, these local banks can also have the chance to facilitate payments and wire

transactions for both foreign and local employees attached to the offshore drilling and exploration rigs. These transactions, will generate revenues for these banks, which in turn translates into the tax system of Guyana.

Oil & gas Industry funding challenge

The oil and gas industry has been experiencing a period of major investment, with

upstream spending topping $700 billion in 2013. This record level of investment is set against a backdrop of over the next 20 years to finance its contribution to the world’s future energy needs. Despite the industry’s immense appetite for capital, compared to other capital intensive industries, it has been relatively conservative when it comes to financial structuring.

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Banking sector appetite for oil and gas investments

The last few years can be broadly characterized by a scarcity of public equity financing, combined with corporate credit conditions that were initially tight but are now accommodative. Banks were forced to introduce tighter lending controls in response to new legislation. In many jurisdictions, the process of rebuilding their balance sheets is largely complete. However, caution around risk management and the pressure to deliver an appropriate return has led banks to tighten lending standards, particularly for small-to-medium-sized borrowers. In response, companies have started to access alternative sources of finance, such as the bond market, project partners, private equity and export credit agencies. There is now both more competition for funding and also a wider range of debt and equity providers serving the market.

Equity Financing:

Equity financing is the process of raising capital through the sale of shares in an

enterprise. Equity financing essentially refers to the sale of an ownership interest to raise funds

for capital investment purposes. Equity financing spans a wide range of activities in scale and

scope, from a few thousand dollars raised by an entrepreneur, to giant initial public

offerings (IPOs) running into the billions of dollars. While the term is generally associated with

financings by public companies listed on an exchange, it includes financings by private

companies as well. Equity financing is distinct from debt financing, which refers to

funds borrowed by a Company.

A breakdown of 'Equity Financing':

Equity financing involves not just the sale of common equity, but also the sale of

other equity or quasi-equity instruments such as preferred stock, convertible preferred stock and equity units that include common shares and warrants.

In the Oil & Gas Business, initial public offerings (IPOs) as well as the involvement of private

companies are common sources of capital investment. These entities, can purchase shares in

the company, each of which represents a proportional claim of ownership of company.

However, IPOs are heavily dependent on Oil & Gas prices as well as on the economic and financial market conditions, thus may be accompanied by significant risk when undertaken.

On the other hand, Private equity, is also dependent on Oil & Gas prices, but serves as a

robust and major source of funding for many small upstream activities that exhibit technological

advantages. Owning to the deep water nature of Guyana’s offshore basin, the need for through

exploration of the basin is highly important as the capital costs associated with these

41

exploration programmes is at all-time high. Thus, this reaffirms the need to conform the nature of the Oil & Gas deposit, utilising the most advance technologies available to explore the basin.

Debt Financing:

Debt financing is when a firm raises money for working capital or capital

expenditures by selling bonds, bills, or notes to individual and/or institutional investors. In

return for lending the money, the individuals or institutions become creditors and receive a

promise that the principal and interest on the debt will be repaid.

A breakdown of 'Debt Financing':

With respect to debt financing, these transactions will be facilitated major lending banks

with which the firm/company is associated with. These institutions/banks will conduct a

thorough analysis of the firms/company’s’ financial credentials, in addition to the viability of the

project being undertaken, before issuing a credit line to the company to finance their capital

expenses. These credit lines will be granted under specific regulations and repayment schemes with attached interest rates over the granted period of time.

Moreover, this type of financing will not affect the nature of exploration activities

currently being conducted in the offshore basin as the firm/company, will have significant

capital reserves to conduct tasks associated with exploration activities. Also, the company can

seek Private investors, to finance these operations, if capital reserves are not available at the given time.

However, the relevance of debt financing becomes more important as the “exploitation

phase” begins because, the cost of exploitation of the resource is significantly higher than the

costs of exploration. Hence the need to choose between equity and debt financing given long

term market forecasts for the prices of the commodity.

http://www.investopedia.com/terms/w/workingcapital.asp

http://www.investopedia.com/terms/c/capitalexpenditure.asp

http://www.investopedia.com/terms/c/capitalexpenditure.asp

http://www.investopedia.com/video/play/institutional-investors/

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Potential Benefits to Businesses:

The oil and gas developments will provide a range of potential opportunities for business in Guyana. Based on the experience elsewhere, in principle, these opportunities could include:

There will be direct contract opportunities in the oil and gas supply chain. Examples could include: supply boats, crew logistics, supplies and equipment logistics (including stevedoring and wharf services), security services and other business services including IT support, accountancy, training services and telecommunications. In some cases, local firms are able to provide support for these services directly.

There may be further direct contract opportunities that could be delivered locally by

existing firms, through firms entering joint ventures with overseas companies, or

through in-migrants seeking to set up new businesses in Guyana. This could include

specialised maintenance services, environmental consultancy, small onshore

manufacturing and engineering services and other specialised services e.g. around

safety.

Indirect impacts of the development of the oil and gas sector will include additional

flights coming in to Guyana offering new visitor travel options (including making more

routes and services viable) and new freight transport opportunities, as well as greater

demand across all consumer facing businesses from the increase in population.

The local construction sector could benefit substantially from the construction boom that the oil and gas sector and population growth will generate. If carefully planned to even out construction activities where possible, there is likely to be opportunity for a sustained increase in the local construction sector over the next decade.

43

Recent exploration drilling activities in Guyana-Suriname Basin

Previous Exploration Program (2010-2012):

44

Current Exploration Program (2015-2016): Source CGX May 2015 Presentation

45

Liza-1 Discovery by ExxonMobil Corp., Stabroek Block Area March 20th, 2015

(Source: Hess Corporation Presentation)

46

Future of other drilling activity in Guyana-Suriname basin:

Guyana’s first commercial Oil Discovery has set the stage for future activity, herein allowing for continued exploration in the offshore basin of Guyana.

However, given the current economics of oil prices on the world markets, the

current and future exploration activities will not be adversely affected although

investors will remain cautious on investments of capital into drilling programmes for

their associated exploration companies.

Drilling Plans (Current & Future, 2015-2024):

Year

Offshore Driling Wells Block 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024

RANGER 2

ExxonMobil Stabroek LIZA 1 RANGER 1, LIZA 2

CGX Engery kanaku

EAGLE DEEP 2

Eagle Deep 3

Onenergy-1

Drill ing Platform

Development Works

Mago Canje Block MAOG

ONE-2 ONE-3

Drill ing Platform Development Works

Aanadarko Aanadarko Anadarko 1

Ratio Ratio Ratio 2

Drill ing Platform Development Works

Source: Fazal Hosein, Consulting Geologist, International Geological Services Ltd.

47

Scenarios for the Future Development of Oil and Gas in Guyana:

Table 1: Key Element of Oil and Gas Scenarios

Key parameters

Scenario 1: Sea Lion plus exploration

Scenario 2: Big oil, no gas

Scenario 3: Big oil, plus FLNG Gas

Scenario 4: Big oil plus land-based

LNG

Scenario 5: Scenario 1 plus land-

based LNG

Oil field development

One field only (Liza 1)

Three fields Three fields Three fields One field

Timing First oil 2017-2018

Liza 1: first oil 2017-2018 Other fields:

first oil 2021

Liza 1: first oil 2017-2018 Other fields:

first oil 2021

Liza 1: first oil 2017-2018

First oil 2017-2018

Gas field development One major field One major field One major field

Location of LNG facilities

Offshore Offshore Offshore

Timing First gas: 2025 First gas: 2027 First gas: 2027

Exploration On-going On-going On-going On-going On-going

Source: Regeneris Consulting

Implications of a Commercial Oil & Gas Discovery in the Guyana

Basin:

The Development of People capacity to monitor and carry out exploration and

development.

The ability of the GGMC to Properly monitor and control all operator activities.

The possibility of establishment of a Government owned State Oil & Gas

company with the responsibility for:

o Independent exploration activities

o Hiring trained personnel

o Establishing training programmes

o Procurement of all equipment and associated software for its personnel

o Creating alliances with service companies in the industry

The possibility of investing on equity in the exploration of offshore blocks: this

course would need to be carefully studied before any action is taken by the

government, as these investment are high risk.

48

With the onset of commercial discoveries of oil, it becomes more and more

necessary for the Guyana Government as well as the Guyana geology & Mines Commission to develop its people with skills for:

1. Managing & monitoring development and exploration activities – this includes

Exploration Geologists, Geophysicists, Drilling & Testing Engineers, as well as

personnel to access the hydrocarbon potential.

2. Reservoir Monitoring & Management – Development Geologists, Reservoir

Engineers, Production Engineers, and Well site Geologists.

3. Facilities Monitoring & Management - HSE Personnel

4. Cost Control & Economic Analysis - Provided that a state Entity is established.

5. Human Resource – People to manage workers needs

6. Management of Operating Bases for Service companies - this includes drilling

fluids, Wireline Logging, Mud Logging, Casing Run, Cementing, and Logistics.

49

Discussion

The near term future of Guyana Oil and Gas Sector has great potential given the

favourable exploration programmes as well as the attractiveness of Guyana to investors to develop its resources.

With respect to the ongoing Crude oil price turmoil on the world trading markets which

has seen the cost per barrel of oil fall to an average of USD$32, has had a significant impact on

major oil producers around the world. But this has not stopped these companies from seeking exploration of potentially unexplored basins that have large scale Oil and Gas potential.

Guyana, holds a favourable position on the potential of its offshore basin , which is

currently undergoing rigorous exploration regimes, by several renowned Exploration and oil

producing companies including ExxonMobil, and CGX Energy. There are also other Low key

companies undertaking exploration in Guyana’s offshore basin. It is worth noting that the capital funding needed for Exploration activates differs vastly from actual Exploitation activates cost wise.

Moreover, the Exploration of Guyana’s basin will not be affected by the current Oil price

turmoil, as funding for these exploration activities are primarily sourced through the company’s own resources or through private equity investment.

The real challenge arises through the Exploitation Phase of the offshore Oil and Gas Fields,

provided that the find is apprised and quantified. Herein, the costs of exploitation services, drilling

and extraction rigs, as well as onshore services significant increases operational costs across the

exploitation phase. Thus as oil prices continue to be significantly low on the International trading

markers, no Company will want to risk investment into such an exploration venture when the

markets process are not favourable for business. However, such companies can begin to pre -bid

the construction for future exploitation, as it do not incur any cost at present when seeking the services of the Industry contractors.

Moreover, experts in the Oil and Gas industry are forecasting that cheap petrol could be

quite a few years off perhaps even as many as ten years before the Republic can turn ‘a red cent’

from oil. Hence, it will be PETROCARIBE for some time yet.

The Canadians have already warned Guyana that oil can have a bittersweet taste. It seems

as though poor countries like Guyana that find oil have a habit, thereafter, of ‘playing God,’

drawing down humongous loans from commercial lending agencies, turning their backs on things

like agriculture and building skyscrapers which are quite commonplace in oil -producing countries,

It would seem as though what the Canadians have also discovered is that oil has a way of

fuelling corruption. That having been said the Canadians have warned Guyana of the need to

manage our oil money wisely. If such a case arises, it might be best to consider hiring a high priced

metropolitan firm of accountants to control the oil money.

The Canadians want Guyana to pass tomes of legislation to deal with things like the environment protection, the transparency of contracts, management et al.

50

As much as it is said that oil is a valuable natural resource the thing has a way of getting

messy sometimes. Oil spills are most always very disastrous in nature, where they can devastate

ecosystems, kill marine life and do untold damage to countries both economically and socially.

Is there oil in our future?

The unpredictability about oil’s future might also be spurring the haste for there is no bigger uncertainty right now than the future of fossil fuels.

World leaders have met in Paris and painted a doomsday picture for the future of our

planet unless there is an agreed cap on the emission of greenhouse gases. US President Barack

Obama said a turning point may have been reached.

“What should give us hope,” he said, “is the fact that our nations share a sense of urgency

about this challenge and a growing realisation that it is within our power to do something about it.” Doing something about it means using less oil and more green technology.

The negotiations have always been stymied by the need to find the money to help nations

shift to more environmentally friendly energy sources. India and France announced plans to

mobilise $1 trillion for solar power for some of the world’s poorest people and Bill Gates of Microsoft said he intends to put billions of dollars into new energy research and development.

The point is that oil is not going to be the energy source of the future world. Guyana has

been party to the worldwide green movement in recent years and while we can surely count on

some oil revenues for future development, falling oil prices and the renewed momentum of the green movement might well translate into lesser earnings than were expected.

51

Conclusion

With a total of only 22 exploration wells, 17 of which were sunk between 1965 and

1977, the search for oil in Guyana to date can be regarded as modest. Results have been modest

but promising, with one discovery well, widespread oil and gas indications and good reservoir

potential occurring locally. Lack of funding reportedly dogged the promise of additional

exploration wells in the 1990s, after an intense promotion effort by the government of Guyana

in the 1980s funded by the World Bank had successfully brought in three groups of Companies.

A recently initiated second phase of Petroleum Exploration Promotion by a returning Company,

PETREL, is expected to stimulate interest and funding. It is anticipated that the results of the

South American Mapping Project, recently concluded by major Oil Companies: AMOCO, BHP, CONOCO, EXXON and UNOCAL will also enhance interest in Petroleum.

Also, with respect to further exploration activities, Guyana’s offshore Basin will continue

to be explored and mapped, regardless of the price of oil on the International Trading Markets.

However, the challenge arises when the significant discovery is quantified and therefore ready

transition to the exploitation phase. Here again, as a rule of the thumb, no company will risk

starting exploitation of promising wells given the World market economics at present. However,

as the market situation improves and the price of oil rallies to favorable levels, to turn a profit as well as finance capital costs, only then will the exploration phase begin.

52

References

Exxon Mobil, Guyana And Keeping Your Dividend Safe, John Rhodes, Sep. 14,

2015, Available online at: http://seekingalpha.com/article/3507816-exxon-

mobil-guyana-keeping-dividend-safe?page=2#

Guyana Geology and Mines Commission, PETROLEUM Available online at :

http://www.ggmc.gov.gy/main/?q=divisions/petroleum

ExxonMobil eyes pre-FEED bids for Liza , By Kathrine Schmidt, Iain Esau, Luke

Johnson & Noah Brenner, Houston & London, 16 October 2015, Available online

at:http://www.upstreamonline.com/live/1414259/exxonmobil-eyes-pre-feed-

bids-for-liza

Socio-Economic Study of Oil and Gas Development in the Falkland, May 2013,

Regeneris Consulting Ltd Avaioable online at: www.regeneris.co.uk

http://www.falklands.gov.fk/assets/Falklands-Oil-and-Gas-Socio-Economic-

Study-Final-Report.pdf

ExxonMobil Downgrade, Joe Carroll , 2nd February, 2016, Available online at:

http://www.bloomberg.com/news/articles/2016-02-02/chevron-hess-join-ranks-

of-downgraded-crude-oil-explorers

Opec Disagreement Dollar Cash Available online at:

http://sputniknews.com/world/20160220/1035106025/opec-disagreement-

dollar-crash.html#ixzz410UMqsoJ

Upstream Insight, November 2008, Guyana: On the Brink of Exploration Success

http://cgxenergy.ca/cmsAssets/docs/analysts/Wood%20Mackenzie/WoodMacK

enzie-Nov08.pdf

http://seekingalpha.com/article/3507816-exxon-mobil-guyana-keeping-dividend-safe?page=2

http://seekingalpha.com/article/3507816-exxon-mobil-guyana-keeping-dividend-safe?page=2

http://www.bloomberg.com/news/articles/2016-02-02/chevron-hess-join-ranks-of-downgraded-crude-oil-explorers

http://www.bloomberg.com/news/articles/2016-02-02/chevron-hess-join-ranks-of-downgraded-crude-oil-explorers

http://sputniknews.com/world/20160220/1035106025/opec-disagreement-dollar-crash.html#ixzz410UMqsoJ

http://sputniknews.com/world/20160220/1035106025/opec-disagreement-dollar-crash.html#ixzz410UMqsoJ

http://cgxenergy.ca/cmsAssets/docs/analysts/Wood%20Mackenzie/WoodMacKenzie-Nov08.pdf


53

Implications of a commercial Oil Discovery in the Guyana Basin, Guyana Geology

& Mines Commission 11th National Mining & Quarrying Conference & Exhibition,

August 23rd-25th, 2015.

Equity Financing Available online at:

http://www.investopedia.com/terms/e/equityfinancing.asp#ixzz423N6mbwK

Debt Financing Definition Investopedia Available online at:

http://www.investopedia.com/terms/d/debtfinancing.asp#ixzz423ObVamU

Plan for the Petroleum Sector by the Petroleum Unit, GGMC, SAMMP Project

Document, GGMC; Evaluation of hydrocarbons by Peter Kehrer, Natural

Resources and Development, vol.17, 1983, Institute for Scientific Co-operation Tubingen, Federal Republic of Germany.

Upstream Insight, November 2008, Guyana: On the Brink of Exploration Success

http://cgxenergy.ca/cmsAssets/docs/analysts/Wood%20Mackenzie/WoodMacK

enzie-Nov08.pdf

Birnie, D.J. & Workman, W., 2007. The Guyana-Suriname Basin: An Evolving

Exploration Opportunity. GEOSEIS Inc., Calgary, AB, Canada and CGX Energy Inc.,

Calgary, AB, Canada

Crude Oil Price Forecast: Long Term Outlook 2016-2025, Available online at:

http://knoema.com/yxptpab/crude-oil-price-forecast-long-term-2016-to-2025-

data-and-charts

Implications of a Commercial Oil Discovery in the Guyana Basin, Guyana geology

and Mines Commission, 11th National Mining and Quarrying Conference and

Exhibition, 23rd to 25th August, 2015 by Dr Fazal Hosein (Consulting Geologist).

Contributors:

Kenisha Wilson

Equity%20Financing

http://www.investopedia.com/terms/e/equityfinancing.asp#ixzz423N6mbwK

Debt%20Financing%20Definition%20Investopedia

http://www.investopedia.com/terms/d/debtfinancing.asp#ixzz423ObVamU



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